Morning, welcome to Blackstone's Investor Day, which is our third Investor Day. I know you're going to find the day worthwhile. We have a lot that we'll share with you today, and you'll hear from many of our different business leaders. Yesterday, we actually gathered, same hotel, with all of our professionals. We call it our Plans Day, and we ran through what's new and what's next, and you'll get to hear quite a bit of that. As you know, in investing, they say that the trend is your friend, and so far as it relates to investor days, that's been true. On our first investor day, we were trading at $10.77.
At our second, $13.39, today we begin at $20.78 and just heard this morning from Mark Adair, I guess Goldman did a study around firms' investor days, particularly those with high free cash flow, which we have. They tend to trade up around in excess of 20% over a five-day period. I'm remaining optimistic. I'm often asked at the beginning or the end of an investor or an analyst meeting, what is it that people are missing? I'd really highlight two things. First, just looking at someone else's business plan doesn't mean you can duplicate it. That really tends not to be true. Second, instead of looking forward, I find that a lot of investors and analysts are really just looking back. They think about the businesses that we're in today and how scalable a particular fund is.
I can tell you that many of the real scale global businesses that we've created since we've been public weren't even on anyone's strategic radar six years ago at that time. The overview slide Oh, let me go back. Sorry about that. The overview slide behind me really isn't so much what's new, but it really is what's continued. We've continued to generate returns of 10%-18% in our liquid funds in the hedge fund solutions and credit groups. 2.2x multiple on invested capital on average in the drawdown products, mainly in real estate and private equity. Which in turn has led the biggest investors around the world to give us additional billions of dollars to invest on their behalf. What's next?
I'm going to throw out a couple of hypothetical cases that I think are actually pretty conservative so that we can think about the future and then look at value creation and how we think about that internally. This first case arguably is really not terribly aspirational. We have 8% fee earning AUM growth. That's about 75% lower than what we've been achieving since our history and really over any period that you'd want to look at. A 2x MOIC, which is less than the 2.2 I just pointed out in our private equity real estate and the other drawdown products. A 7%-10% return on the credit and hedge fund solutions products, again below what we've been able to achieve historically. An advisory business that grows in aggregate at about a 5% rate.
As you know, we've been in a long investing period and we've just started harvesting really towards the latter half of last year. We begin this year with a real treasure trove of high quality, high value assets that we plan to sell down over the next several years. In this not so aspirational case, we can achieve $2.17 per share of cash earnings on average per year over the next 10. That doesn't even assume the new funds raised start to have the realizations. We get to that level within the next couple of years. The way we think about valuation and value creation internally is not to assign different and potentially arbitrary multiples to the different types of earning streams, but we really look at total earnings.
There's no one that you'll hear from today who's managing their business just to earn fee income, I assure you. If we use cash earnings as the benchmark, even though ENI, our reported metric, could be higher, a reasonable 5% yield on the stock implies a price of $43 in the near term, which is about double where we closed yesterday. If we want to be a little bit more aspirational, still less than 50% of what we've been able to achieve, we assume a 13% fee earning AUM rate instead of 8%, but we keep all the other assumptions the same. We move to an average of 250 per unit over the next 10 years, lifting to 395 in year 10. Obviously at that point, if you use the same dividend yield of 5%, you get a stock valuation that's considerably higher.
With all of the caveats that go along with any hypothetical linear model, the biggest takeaway from today and from this, hopefully, is that what we're aiming for as a leader in performance and the ability to innovate and launch scale new businesses within the faster-growing alternative asset class isn't easy, but it's well within reach. I know you'll enjoy the rest of today and look forward to catching up with you at lunch. I'll now turn it over to our founder, chairman, and CEO, Steve Schwarzman.
Thanks, and good morning, and thanks for waking up early and getting here. Welcome to Blackstone's third Investor Day, as Joan has said. I'm glad you're all here, as well as those who are dialed in on webcast. Next month will be the sixth anniversary of our public offering. The world's been through a lot of turbulence since then. From descending into the depths of the worst financial crisis since the Depression of the '30s, to a sharp rebound in global market, and of course, the continuing volatility, politically and economically. This has not been an easy environment for anyone, nor has it been the type of world where outstanding investment performance has been common. In this type of environment, more than ever, investors have needed a safe pair of hands.
A strict standard for discipline, a proven investment process, and a commitment to excellence, we've earned an extraordinary reputation among our limited partners. They've entrusted us with more and more capital as a result. As you can see in our growth, which Joan mentioned, 28% annually over the past 20 years. We are two and a half times larger than our size at the time of the IPO, while most money managers are lucky if they even remained at the same size over the period. The largest institutional investors in the world have been allocating more and more capital to the alternative space because it generates better returns over long periods of time. This is an attractive combination. Among the alternatives, Blackstone is taking greater and greater market share. In fact, in the past two years, we've raised $96 billion from our investors.
This is more than the total capital raised by our four closest competitors combined. I want to give you that one again, for those of you who think we have a growth problem. In the last two years, we've raised $96 billion from our investors. This is more than the total capital raised by our four closest competitors combined. More and more investors around the world see the strength and enduring nature of our track record over many years, and they're deciding it's a good idea to give us more of their capital to manage. I think it's quite a staggering accomplishment. I think as investors allocate more capital to our industry, Blackstone will be the greatest beneficiary. What is it that sets us apart? Why are we able to raise this amount of capital?
What do our investors get from us that they can't get anywhere else? I think it really centers on the unique diversity of our model and the way information flows seamlessly throughout the firm. We figured out how to bring all this information together. It is truly the cornerstone of our culture. We use the intelligence we get from all of our businesses to see where paradigms are changing. In effect, we can look around corners. No one else in the world has the array of businesses that we have with the level of leadership that we have in them. Our platform is vastly more robust. Some other firms have seen the value that we have in our model, and they're trying to replicate it. It takes decades to really get it right.
Inevitably, they've often hired the wrong people, which typically leads to some optimal results and so on. Even those of our peers who have some successful elements of our strategy lack the breadth and integration of our platform with teams that have worked together successfully for decades. Today, you'll hear from the heads of our different businesses, and you'll hear a lot about what's driving our growth. You'll get a sense of how each business continually reinforces its leadership position in the market. You'll hear why, despite the fact that several of our businesses are already the largest of their kind in the world, they'll continue to grow at double-digit rates. What does this all mean for our public investors?
As Joan mentioned, if we even grew our AUM at 8%, down from like 27 or 28, doesn't sound so hard to me, which is a fraction of our historical performance. We could be generating well over $3 a share in cash earnings or a $64 stock price based on a 5% yield. I think we're capable of a lot more than 8% growth. At a growth rate of 13, which is a little less than half of what we've done historically, we could be generating nearly $4 per share in cash earnings or an $80 stock price based on a 5% yield. I see my friend John Finley, who's our general counsel, who's looking at me and saying, "Say that thing about you can't predict the future and so forth." I just said it.
I've been in this business a long time, and I've got a different way of looking at things than many people do. It's a very long-term oriented view and something I'm really comfortable doing. When I look at our industry and I talk to the people who are allocating capital, and when I look at Blackstone and I hear what they say, I believe there are great things in store for us as a company, and I think we're uniquely positioned. When I began the firm as an advisory business with my partner, Pete Peterson, in 1985, we had $400,000 in capital and one administrative assistant. She worked for Pete, not me. I had a year and a half of opening the front door. Not a lot of fun. Today, we have 1,800 employees in 25 offices on five continents.
While the growth has been significant and the scale of things has changed dramatically, we are the same firm. We still operate as a small partnership, and we still share the same core values. Our business model remains simple. It really hasn't changed. We're dedicated to generating innovative solutions for our investors and clients, and driving outstanding returns and minimizing risk.
Whether that materialized through building a company from scratch in our private equity business you'll hear about, creating affordable quality housing for Americans in our real estate business that Jon Gray will tell you about, whether it's our GSO credit arm, which Bennett Goodman will be talking about, providing a financing solution to a good company so that it can stay open, keep its people employed, and focus on core businesses, or through the investments we make across all of our businesses on behalf of the pensioners in the U.S. and abroad. We are still today and will always be the same Blackstone. Our principles are simple as they've been for 28 years. We strive to maintain a zero-defect culture. Achieving best-in-class results requires an environment that supports and demands excellence and accountability.
We have a real dedication to integrity, where we don't operate in any gray areas and never tolerate questionable practices in any of our dealings. We always hold ourselves to the highest professional ethics. We have a sharp focus on teamwork, as they said on the video, on working together to achieve our goals. We are committed to fostering entrepreneurship and taking a unique and creative approach to identifying opportunities for value creation. We are committed to protecting capital. Nobody has ever done well in the investing business by losing anybody's money. These principles guide everything we do, as long as we remain true to them, our business will continue to prosper.
I'm confident that you'll come away from today with a better sense of how our people work together to drive our sustained strong results for you, our investors, of which I am a very large one. I am on the same team as you are. I want the firm to do well. I want you to do well, we're going to do that. I look forward to answering your questions with our President and CEO, Tony James, who's over in the corner, ended the video, will be available up here, I guess, around noon if we stay on schedule. Welcome again. With that, I'd like to ask our CFO, Laurence Tosi, who we call LT if you have any interaction with him. He doesn't play defensive tackle, he's still very good to take the stage.
Steve mentioned our aspirational culture. My aspiration is one day at some Investor Day, I won't have to speak after Steve and before Jon Gray. That's my goal. When that happens, things will be good. I'm the blah, blah in between wow. Today is really about not really what's happening with the firm today, what we think will happen with the firm in the future. If you take nothing else away from the discussion we have today, it's the first two points on this page. Sustained growth. At Blackstone, we have something that we call the innovation advantage. All my partners and Tony, in closing today, are going to focus on just that theme.
I ask you to consider, as you hear from each business, that the key to our growth is the fact that we've had the four main investing businesses at Blackstone for almost 20 years. What drives our growth is that we are, in many cases, on our second, third, fourth, or even more generation of reinventing those businesses, iterating innovating ways that allow us to create solutions for clients. It's not that we are trying to diversify ourselves. We've always been diversified. Focus today on within each business what we're doing to create the growth. That is the reason why over the last few years, we have added not only to existing strategies but $76 billion in entirely new strategies since the IPO.
That is wholly unique to not only public companies in general but to our industry, and a reflection of a cultural predisposition to fund sustainable fund outperformance by constant innovation. The second point on this page is value creation. Consistent in all of our businesses is our belief in managing strategies for funds only where we have a sustainable advantage, whether that be by synergies with other businesses, the ability to impact the outcome of our investments after we make them by intervening operationally or actively choosing allocations and risk profiles. That is why, for Blackstone, a cohesive, integrated platform focused on broad mandates to pivot nimbly and effectively to places where we can find and create value is what drives every business at this firm. It's the common theme. These two qualities are truly unique, and I think unmatched.
It is also the reason why much of what you will hear and see today are not just concepts, ideas, or even aspirations. They are scale realities built quietly over time. We are not always first, but we are more often than not the pioneer in products and innovations, and that has advantages in time, quality, and growth. It's the essence of the Blackstone culture. That said, I'm going to focus my comments today on how you can see these unique dynamics in our performance, and also give you how we internally look at the business, the cycles, and the key indicators of our outlook. Today, two of those key themes are gain realization and momentum. Over the last 12 months alone, we've generated $17 billion from 115 transactions of cash realizations, including performance fees.
Momentum, today I'll show you some charts that look at the way we look at the business and the dynamics of momentum that's built into the firm and the business model that drive our earnings. First, I'll start with what I refer to as the business cycles. To understand Blackstone is to understand how the cycle of growth works. If you start at the top, our fundamental investors are institutional investors, and they're solving for long-term liability issues. They're not episodically investing in products. They're in the market every year looking for solutions to solve for long-term liability issues. They then match that with our long-term commitments, the lockups in our funds that allow us the freedom to invest and find opportunities. In the last 12 months alone, we've added $34 billion. From that, you look at what our investment pace.
In the last 12 months, we've invested $17 billion. That's a steady rate, but the mix changes over time depending on our view of where the opportunities are. We provide that capital to the bottom right to opportunities across regions, strategies, and stages. Comes the part that is unique about Blackstone. We create the value. Over the last 12 months, we've created $18 billion of value for our investors. Comes the sustained outperformance. When you create that value, you're essentially creating more assets that have performance fees and management fees that accrue to the benefit of the unit holders. That drives the sustained outperformance, and I'm going to go through exactly how that impacts the model. In the last 12 months, we've returned $23 billion of capital back to those same investors who are now looking at other investments.
Over time, different parts of the cycle in front of you will change with their speed, their depth, but the basic model continues through the cycles. Since 2009, the total AUM has grown at a faster rate than fee-earning AUM, reflecting the acceleration of value creation across the Blackstone funds. I thought you might find this chart interesting. To the left, you can see the period that before 2009, fee-related AUM was growing faster than total AUM, largely because we were in the process of putting investments in the ground. You can see from 2009 till today, what accelerates in the business model is not just that we have continued to raise new capital, but more importantly, the capital that we have raised becomes more valuable. The economics of the business therefore become greater.
That's why you see at this point in the cycle, a much faster growth in the total AUM, which is the amount that we're paid performance fees on, versus the fee-earning AUM. I'm going to break that down for you. You also see at this point in the cycle, as value creation across all the firm's businesses accelerates, it drives performance fees and realizations, which both reached an inflection point over the last 12 months. If you look at this chart, the way to read it is the top is the realizations that we have year after year. You can see even in the depths of the market, there were still realizations, and that reflects the diversity of the firm and the countercyclical nature of some of our businesses.
At the same time, while the investment pace has remained robust, what you're seeing is an acceleration in the growth. Since 2007, we've had $47 billion of cash realizations, and that's the beginning of feeding the cycle with our investors. At the same time, we've created $88.5 billion of performance-fee eligible AUM, and I'll show you some dynamics related to that number in a second. What's interesting about the business model is that performance-fee-earning AUM has quadrupled since 2010, driven by strong inflows and what we refer to as the compounding effect of fund performance. If you go through each one of these numbers, think about it when we look at the top. There's 122% compound annual growth rate for our drawdown funds, including the value created.
Essentially, when we put money in the ground and we create value, it creates a new set of assets to which we still have performance fees and fee-earning AUM against. The CAGR against our drawdown funds is 95%. That's 52% for our net asset value funds. What does that mean? All of those numbers are far greater than the fundamental growth. Steve mentioned the number 27%. All of those numbers are multiples of that 27% inherent growth rate because when we're creating that value, we're creating assets that then throw off performance fees or management fees related to that value over time. Said differently, if you look at the $13.6 billion at the top of the chart, those are assets that effectively we've created that are now performance-fee-producing assets.
That's the compounding effect that I think is quite often misunderstood or at least not appreciated enough in the business model. That creates the momentum going into the cycle. You can see how that plays out in our financial numbers. Our realized performance fees are rapidly approaching pre-crisis levels, while an increasingly diverse AUM base has continued to scale. All of what I just said about the compounding effect translates, of course, into performance fees. There's two things to take away from this particular chart. The first one is we're just now beginning to reach pre-crisis levels in terms of the last 12 months, almost $1 billion in realized performance fees. Look at the far bar to the right. It's a very different Blackstone.
If you look at 2005, 2006, and 2007, years where we had $1 billion of realized performance fees on a much dramatically lower asset base between $38 billion and $83 billion. Today at $171 billion, look at the mix. Blackstone's not the same Blackstone that went public in 2007. It's a much more diversified, balanced business. Right now, we have $131 billion of performance fee eligible AUM. That's four times what the company was in 2004 and 2005. 77% of the invested capital is performance fee eligible. It's above its high water mark or hurdle, meaning it's earning returns for the investors. At the same time, we're still feeding through the marketing engine behind Blackstone, $34 billion of dry powder AUM, which is a forward indicator of our ability. A couple words about earnings.
The realization activity is driving a shift in the earnings mix towards a greater percentage of cash generation, while value creation remains robust. I have to say that one of the things that's somewhat interesting, because I'm a finance person, interestingly, is the debate back and forth about the numbers in our business and this measure or that. The reality is that ENI, the closest measure to GAAP, actually for businesses like ours, has elements in it which are quite unlike many public companies. ENI shows you different components. At the bottom of the page to the right, you'll see our fee-related earnings. A simple measure that takes our management fees, advisory fees, and transaction fees, subtracts 100% of the firm's expenses, and translates into a steady cash flowing platform. Above that, in the green line, you'll see those are our realizations, net of compensation.
Those two components are the cash portion of economic net income. Above that is ENI itself. GAAP requires a mark-to-market. In a way, for firms like ours, we're showing you what we believe the future value of the assets that we have in the ground are. In fact, it's actually conservative. Over the last 15 years, we went back and looked in real estate and private equity, and our exits are typically 15%-20% higher consistently than the marks that we had going in. That value creation vehicle is very important. While the cash components of ENI have accelerated, and you can see on this chart, they're now 64% of earnings up from 47% in 2010.
A key part of that is not only is the cash generation of the firm getting better, but our future forward earnings, as indicated by the accrual of performance fees, continues to grow. Another point I'll make is that I've been reading with some interest, some of the analysts in the room, the debate back and forth of which the right measure, et cetera. It's a question without an answer. When we went public, sometimes it's easier to be a settler than a pioneer. As a pioneer, we came up with the definitions of economic net income, fee-related earnings, and distributable earnings. All of them are tied back to GAAP. The question of which one matters isn't really a question, and there isn't an answer. Each indicator matters for different readings of how a firm's performing. Each one matters with a balance.
To some investors, at different times, with different prospects, they may look at distributable earnings, they may look at fee earnings, they may look at ENI. Each one tells you a different thing about how the firm is performing. We've had steady measures of each since the day we went public. We've never changed the way that we define them. Quite frankly, the discussion about which one matters doesn't really matter because what's most important, and Joan and I and Weston spend a lot of time with investors is, they're most focused on which one's operating at what point, and what does that tell you about the current performance and future performance of the firm? A switch.
As you see the acceleration, as I refer to it, as the compounding effect in the firm, it also has an impact on the balance sheet and the embedded value per share. The sustained investment performance strengthens an already high-quality balance sheet, which we have low levels of debt, high equity base, and strong free cash flow. The reason why over the last two years the balance sheet has grown faster than the firm's inflows is simply because the compounding effect. If you look at the elements, you'll see at our total cash and treasury investments. We have $800 million in private equity, $0.80 per share, $0.99 per share for real estate. All of that has been growing. It's highly diversified. It's 2%-3% in every fund we have everywhere in the firm. Look at the bottom.
The net accrued performance fees has accelerated as the firm has reached a closer point in the realization cycle. That growth from $4.17 per share to $5.93 per share today is despite the fact that we've paid out $1.5 billion to investors, or roughly $1.10 in the last two years alone. A little bit about valuation, the curious part. Blackstone's competitive positioning, operating fundamentals, and secular growth trends have not translated into a higher multiple, yet. The secular trends. Alternatives are the fastest-growing segment in asset management by a wide margin. Look at the chart on the top right. The traditional asset managers are growing at roughly 12%, BX has grown 202% during the same period. The market dynamics. The barriers to entry are increasing as track record and investment platform dictate returns.
Two years ago, if I had said to you that three out of the last four funds that we raised would hit their cap, you'd say, "Well, that's really 2007 thinking." That's what's happening. Competitive position. Within alternatives, Blackstone is gaining share and outpacing the segment. We're the fastest-growing player, and part of that is related to the fact that we're the most diverse and we're in the most funds. Look at the bottom from a pure stock percentage. Our cash yield is 2% for the traditional managers, 5% for Blackstone. Our operating margins, 33% for the traditional managers, 50% for BX.
To give you some perspective, of the companies in the S&P 500 that have reported as of this morning, their year-over-year growth rate is 2.5%. Their four-year growth rate, an anemic 11%. For some reason, they trade at a 14.5% multiple. Apply those same dynamics to Blackstone. Year-over-year growth, 25%. Compound annual growth rate over the last five years, 40%. Multiple, 9. It's not sustainable. If you look at our P/E multiples when we went public, the traditional managers were at 19, BX was at 15. Today, they're at 16 and we're at 9. I don't know when it will change, and it might be related to the fact that we're new public companies, but it's certainly by any measure not sustainable. Finally, I'll finish with this as an overarching theme that you should think about when you hear from all my partners today.
Blackstone is uniquely positioned to capitalize on global opportunities to create value for our fund investors and Blackstone unitholders. In a tough investing environment, and Steve referred to this, in a tough investing environment, you simply can't sit back and rely on the 7% or 8% returns that we used to see in equity markets. There's nobody in this room that will tell you that they think going forward credit markets or equity markets will do that. That's why alternatives are the asset to invest in now, because we can affect the outcome of our investments. We can find opportunities away from crowded public markets. That is the essence of opportunistic capital. We believe we're uniquely positioned as the provider of choice to create long-term value across alternative asset classes and liquidity profiles. The second piece is very important.
I have to admit, when Joan and Weston and I spend a lot of time with investors, I often bristle at the following statement. "We're making an allocation to alternatives. We are interested in you and your peers." Caution on that. We are dramatically different than even the peers within our own segment. Blackstone is a different company. That balanced and diverse business is what drives our sustainable advantage over time. Every business at Blackstone continues to innovate ways to create value and revenue streams through synergies with core expertise and product lines. As I said when I opened my comments, in many cases, we're on the third, fourth, and fifth generation of what a real estate business is, of what a private equity business is, of what credit and hedge fund solutions are. They're entirely different. We don't view them as segments to enter.
We view them as segments to innovate. The next piece is important for the shareholders. Strong operating fundamentals. 50% operating margins, strong and consistent cash flow from fee-related earnings, and the compounding effect, which I articulated earlier about performance fees. Something has to give with respect to the valuation. The last piece is all of that combines to create best-in-class growth. Blackstone has grown at total AUM 4 times faster than the traditional managers since 2009 and 16 times faster than 2006. That's not a coincidence. With that, we welcome you to be here today. As you'll see from my partners and everyone else in the business, we love talking about Blackstone. It's a unique time. It's an exciting time to be at the firm, and we believe we're just beginning the essence of a great cycle and really becoming what Blackstone can be.
Thank you very much.
Everybody, thank you all for coming out. Thank you again for your time and for your endurance. We know we give you a lot of information. My goal today is to talk about the real estate business, to talk about some of the key questions that you may have, and then open it up to some of your actual questions as well. The good news on the real estate business, I think the story's pretty straightforward. Today, as you heard from LT, we've got $59 billion of AUM in real estate, and we've generated 16% net returns from our global funds over 20-plus years. Those two things are obviously very related. We also have had only 1% realized losses, which is pretty remarkable when you consider what happened in 2008 and '9 in the real estate business. Importantly, we're not just stewards of capital on the downside.
We're willing to take risks when we think it's the right moment. We have put out $23 billion of capital since the crisis, which we believe will pay big dividends for our limited partners and our unit holders. When people ask us, "Why have you been successful?" I think the key word is continuity. We've had the same basic strategy. We call it buy it, fix it, sell it. We like to buy income-producing assets at a discount to physical replacement cost. Fix whatever's broken with it, could be over-leveraged, could be lease-up, could be management. Fix that broken item, then sell it to the right long-term owner, public company, institution. We did it just last week with some German apartments we'd bought in bankruptcy a couple of years ago. We sold them on to a public company. We also took a stake in that company.
We've also had the same investment process the entire time. Every Monday morning at 10:30 A.M., every deal comes back to the same room in New York. Stephen Schwarzman's there, Tony James is there, all the real estate professionals around the globe. This is not a franchise operation. Every deal, I like to say Dalian, China, Dusseldorf, Germany, Dallas, Texas, comes back to the same room. That process has really kept us out of trouble over time. Importantly, we've had a lot of continuity in our people. I'm about to start my 22nd year at the firm. We have 19 partners in the real estate group who've had an average tenure of 13 years. That's very helpful for long-term investment performance.
In terms of the environment, I'll go into it in more detail, clearly, the credit crisis has been helpful in terms of creating opportunities, changing the competitive landscape radically, and also limiting new supply, which is key in terms of real estate performance. Speaking of performance, these are our global funds going back to 1991, what you see here is through good times and bad, remarkable performance. This is on a net basis after fees and expenses and carried interest. Ironically, the fund here we're most proud of is BREP V. It was invested 100% in 2006 and early 2007, today is showing a 9% net return, 1.7 times multiple of capital. For comparable vintage investments in our world, most funds would have lost half or more of their investors' capital. That's the reason why we've been so successful raising money.
Speaking of raising money, we have raised organically since 2007 over $40 billion of capital in this business. That excludes the Bank of America Asia fund we took over or the CapTrust management platform we took over. These are funds we've raised from our institutional partners, most of it in our BREP, our opportunistic business, a big chunk of it in our debt strategies business, which I'll talk about later, $40-plus billion. One of the magazines, PERE, came out this week and said that we have raised more than four times our nearest competitor in this industry over the last five years. Obviously, you raise a lot of capital as a result of great performance. Your AUM grows. As you can see here, fee-paying AUM in our real estate business has grown 631% since 2005, total AUM has grown 765%, fairly remarkable numbers.
Now some of the key questions. Obviously, you as investors, a lot of people ask, I thought I'd try to hit some of them up front. The first question, why have we been putting out so much capital? Underneath that specifically, why in asset classes like single-family housing in places like Asia and Europe? Will you, can you exit current holdings? Are you just some sort of asset gatherer? We are not. We'll talk about that. Is Blackstone Real Estate just too big to keep growing? I can tell you no is the answer to that. We'll show you why. Let's start with the big question on capital deployment. Why have you been putting out so much money? In my mind, it starts and ends with the global credit crisis. What did the crisis do? It slowed GDP growth.
All of you in this room know that. It caused unemployment to be quite escalated, particularly in the U.S. and eurozone. It's caused big deficits around the globe for almost every major government. At the heart of the financial crisis, the financial institutions themselves have seen their share prices go down dramatically and have been forced to shrink their balance sheets. When you look at that set of facts, you say, "Gosh, I want to hide under my covers." Yet we went out and put out this $23 billion of capital, and the question is, why? The answer to that is the way the credit crisis transmitted into commercial real estate.
What it did, if you look at the chart in the upper left-hand corner, the first thing it did was create a lot of distress, and you see in that upward slope beginning in 2009 in the CMBS market. If you look at vintages like 2007, as much as 40%, when you look at special servicing foreclosure watch list is in trouble. That created a lot of opportunity for us. At the same time, moving to the right, our major competitors in this business when we headed into the downturn were financial institutions who did opportunistic real estate both on balance sheet and in funds. Because of performance and the changed regulatory environment, for the most part, they've exited this business. Add to that the debt markets have obviously been quite constrained. In the U.S., in Europe, the CMBS markets have come down dramatically.
Now, that's starting to shift in the U.S., but the last few years we've had a very favorable investment environment. Lots of troubled assets, not a lot of equity competitors, and limited debt markets, making it hard for owners to refinance. That created real opportunity for us. This chart specifically shows private equity fundraising in the U.S., Europe, and Asia in real estate since 2008. What you see here, 45% and 70-plus percent declines. If you stripped out BREP VII out of the U.S. number, you would see 70-plus percent declines in the U.S. as well. Our experience in raising all this capital is directly opposite of what's happening in the rest of the market, which of course, has benefited us when it comes to bidding for troubled assets.
Another key factor, the reason why you see good performance from our portfolio and all the public real estate companies out there, is not because of robust economic growth, the credit crisis took away capital for new construction. Obviously, banks were interested in shrinking balance sheets, not growing them. Around the world, in Asia, Europe, and the U.S., as this chart shows you, we've seen sharp declines in new supply. That's why you see same-store hotel RevPARs going up nicely. That's why you see industrial warehouse, retail occupancies all climbing. The credit crisis gave us the opportunity to buy assets at a favorable price and then believe very little in terms of economic growth because new supply has been so constrained. What did we do?
We went out and bought a lot of distressed assets, have continued to do so over the last four years. If you look at this chart, this is a bunch of notable deals we did along the way. I would just point out a couple. Extended Stay hotels, we sold that asset in 2007 for $8 billion, bought it back in 2010 for less than $4 billion with some partners. The Burlington Hotel we bought at the end of last year. It's the largest hotel in Dublin. We bought it for 80% less than it sold for 2007 in a foreclosure sale. The Top Ryde City in Sydney, which we also bought at the end of last year. We bought at a foreclosure sale as well, down 50% from its AUD 700 million construction cost.
Obviously, the credit crisis created a lot of very interesting distressed opportunities for us. Specifically, you saw the video on housing. There are a lot of questions. Why have you gone out and been so aggressive in buying housing? Today, we're, I think, north of 26,000 homes. The answer, very similar to our commercial business, opportunity to buy hard assets at a discount to replacement cost. We've been buying post-foreclosed homes from the banks primarily. As you can see here, the prices on average are down 50% from where they were back in 2006, so we were able to get into these assets at an attractive basis. Then we believe there would be a recovery in housing, that hard assets would revert to replacement costs because of the supply-demand imbalance. New supply completions in 2012, down almost 70% of homes versus 2006.
If you look for the last four years, on average, new supply of housing in America has been running about half of what's needed relative to population. I know you read in the paper it's because of Blackstone or some of our competitors that's moving up the housing market. There are 115 million homes in the United States, more than 5 million of them traded last year. We bought 26,000. What's driving home prices in America is a shortage of housing. Existing stock has to head back to replacement cost. That will be a signal to builders to go out and start building again. We think that's going to happen. Asia. Asia did not get hit nearly as badly as the U.S. and Europe in the financial crisis, maybe with the exception of Australia. In the growth markets of China and India, everybody's talking about growth slowing in Asia. Yes, growth has slowed. When you look at it in contrast to what you see in Europe and the U.S., it's a pretty sharp contrast.
In London and New York, you see here very modest absorption of office space. Compare that to Shanghai and Mumbai, which absorbed 8% or 9% of the existing office stock. Yet there's not a lot of capital. You saw private equity real estate fundraising down dramatically. What about the public markets? Down 84% from public equity issuance levels for commercial real estate, residential real estate companies back in 2008. Once again, less capital for this sector, creating a very interesting opportunity for us to invest.
We have gone out and we're raising, as we've told people, a $4 billion Asia fund to take advantage of this opportunity. There are almost no scale Pan-Asian commercial real estate investors today. In Europe, little bit of a different story. Obviously, the economic picture is much more challenged. Growth here is quite constrained. I think one of the biggest challenges out there are the banks. If you look at this slide, you can see the banks in Europe are just much more leveraged than the U.S. banks. As a result, they're going to have to sell to reduce their balance sheets. They don't have a very big CMBS market. They don't have a big REIT unsecured market. There is real credit constraints in the European markets today.
What you see here is the banks, that $2.5 trillion of real estate debt is going to have to get reduced. There aren't a lot of players out there to do it. Last year, we went out and put out $3.5 billion of equity in Europe, not because we're big believers in European growth, but because the distress there is creating very interesting opportunities to get favorable basis and assets. Can you exit your current holdings? What I've done here is highlight the two largest holdings we have in our real estate business, Hilton Worldwide and Equity Office, CarrAmerica, Trizec, our office platform. What's interesting about both these transactions, we own them heading into the crisis. In both cases, we thought we owned great companies, great businesses. Even though the world was very nervous back in 2009, we believed in these companies.
In Hilton Worldwide, we bought $1.8 billion of debt at $0.46 at the bottom of the market. In our office platform, we bought more than $1 billion of debt at $0.75. Those both turned out to be pretty good decisions. Our cash flows at Hilton are up nearly 60% from where they were in 2009. The company's also added an enormous number of rooms. Our office portfolio has gone from low 80s occupancy to nearly 90%. Once again, not on the back of great growth in the U.S., but on this lack of new supply in the office sector. No surprise then, in terms of what's happened in recovery.
You can see here in BREP V and BREP VI, those funds have seen huge improvements in terms of where they were carried at the bottom of the crisis in the fourth quarter of 2009 versus where they are today. BREP VI has gone from 0.5x multiple of capital to 1.6x. BREP V from 0.9x-1.7x. Big recovery in the value of these assets. Of course, accrued carry has gone up considerably. In the fourth quarter of 2009, we basically had none on the balance sheet. Today, we have $1.5 billion. That's net of employee compensation and assets that we've sold along the way. We feel very good about our portfolio, particularly as things continue to recover in the United States. Now, distributions. These have begun to pick up. These are the gross distributions to our limited partners.
As you can see, they tripled 2011 over 2010, more than doubled 2012 over 2011. In Q1, up another 86%. We have told the market we expect in real estate a material pickup in dispositions over the next couple of years. I would reaffirm that statement strongly today, given what we see out there in the marketplace. One of the questions is some of the things like Hilton, Equity Office Properties Trust, Brixmor Property Group, which are our large retail platform, Invitation Homes, a number of things we own. People say they are so large, can you really exit from these assets, these companies? I would point to two very favorable factors. The first one is public company debt costs today. Public companies out there, these are large public companies in the U.S., generally borrowing around 3%. They have unbelievable access to debt capital. Their shares are now trading pretty well.
We are seeing them become much more acquisitive. At the end of last year, we sold a large senior living portfolio to HCP, Inc. I would expect you will see us IPO or merge many of our assets into the public markets here in the U.S., and I think it may happen increasingly over time in Europe as well. Another very important factor is the rise of the sovereign wealth fund. Sovereign wealth funds today are faced with a world where they get 1.6% buying a 10-year U.S. Treasury, and they have concerns about inflation. You can buy a building that yields 5% today. They are not building a lot of them, and there is a chance for capital appreciation and inflation protection. They are logically saying, "I want more exposure to real estate." You are beginning to see that around the world.
When it comes to our higher quality assets, our office buildings, for example, in London and across the U.S. in the big coastal markets, I think you will see a number of sovereign buyers showing up as we move to sell these assets. Is Blackstone too big to keep growing our real estate business? I give you a couple of examples here that I think prove that is not the case. Our debt strategies business, which is basically lending high yield lending to real estate borrowers, did not exist in 2007 prior to the crisis. We brought on a fellow, Michael Nash, we had known a long time. Michael is a very talented investor. We have grown this business now to north of $9 billion in five years.
We have generated, buying debt, this is not for control of assets, really just to be lender, either buying debt or originating debt, 13% net returns. We have done that also in the liquid markets. We have a couple of CMBS funds that have over $1 billion of assets, also produce great risk-adjusted returns. No surprise, we have been able to raise more capital. We have announced that we closed on our second BREDS fund, $2 billion first closing. We think we will finish that fund north of $3 billion here in the next couple of months. We have taken over CT Investment Management of this mortgage REIT. We have renamed it as of last week, Blackstone Mortgage Trust, Inc. We have filed for an additional offering, and as a result, I cannot talk anymore about this, but when we can, you will hear more about this story over time.
Another area that didn't really exist for us prior to the crisis was Asia. We set up our business in 2006 there, started in India, Hong Kong, spread out Japan, really built a presence there, but carried the overhead for a number of years because we couldn't make sense of the investment opportunities or lack thereof. Fortunately, the crisis came along. We got a real opportunity to grow the business. We took over a platform that Bank of America had. Today we have 50 people operating in the region. We've deployed now $1.7 billion. It's been a great investment area for us. As I mentioned before, we think the opportunities are attractive. We're going out now.
We said we're raising a $4 billion Asia fund, our first dedicated Asia fund. Our first closing for that fund is going to be in the second quarter coming up fairly soon. The key takeaways before I open it up to some questions. In terms of the performance, it's all about performance in driving our business. The reason we're able to attract so much capital is because we've delivered truly differentiated performance. Our current global fund, BREP VII, is now about half invested. We've generated 32% net IRRs to date on that fund. Our fully invested global funds, which were primarily invested prior to the crisis, are all now carried at 1.5 to 1.7 times MOICs. Those numbers have been moving up. We think that should continue. We've talked about capital deployment. We put out $23 billion since the crisis. We still have $12 billion of dry powder.
One fact I think unit holders, analysts don't focus on, we have recycling ability in our current funds. In BREP VII, as long as we generate a gain during the investment period, we can deploy additional capital. You could see a fund like BREP VII end up much larger than its $13.3 billion face number. In terms of fundraising, as I mentioned, we've raised more than $40 billion. We're in the market today with Asia, BREDS II, soon-to-be Blackstone Mortgage Trust. On the disposition side, which I know is a lot of the focus, up sharply in the first quarter of this year. As I said before, we expect a material pickup over the next couple of years. With that, Joan, I guess I open it up to any and all questions.
Ladies and gentlemen in the room, if you could kindly wait for a microphone to come to you.
Can you give us a sense of the total real estate market and what percentage you are of it? At what point would you be getting so big that you couldn't maneuver as well? On the single family, if we assume that you are at your point of full investment, will the single family produce income? From the rental income minus the maintenance, I guess, would that produce a decent income, I guess, a yield?
Sure. I'll start with the single family question. We're generally buying, have been buying net of overhead costs around 6%-6.5% unleverage yield. I think we've got a real advantage because we're operating on a much larger scale than other people do. I think costs may be difficult for some of the smaller players. If you use leverage, that allows us to generate for our investors a high single digit, maybe even a double-digit current return. Yes, there is a nice current return to the business, but that's once you're stabilized. Remember, we bought a lot of homes, we're renovating a lot of homes, and then we're leasing them up. Today, we're about 85% leased on our homes that are renovated, but we've got an awful lot of homes to continue renovating. I think for us, it will be a nice current income product.
In terms of our percentage of overall real estate, it's got to be very small. Our total gross assets are probably $120 billion today, when you include the debt on the properties. Commercial real estate globally, I don't even know what that number is, but I'm guessing it's $10 trillion. It's a much larger number than what we're owning today. I think the opportunity set remains pretty large. I haven't really looked closely, but we haven't found that to be an issue yet. As you've seen from the residential sector, a sector we never invested in before, that alone is another enormous sector that we've now gone into, which has given us another place to deploy capital on a favorable basis for our investors.
Go ahead.
Matthew Kelly, Morgan Stanley. Thanks, John. You've had a good move in the underlying performance of some of your big assets, and we can see the pickup in realizations, but it's obviously from some of the smaller ones. I guess I'd just ask you on the large investments, what do you expect from here? Not in terms of timing, but in terms of the performance. Do you think it's accelerating your growth on some of those, or it's decelerating or kind of flattened? What's your outlook for when would be a good time to exit some of these?
What I'd say is, it's a couple things. One is we tend to sell when assets are more stabilized, right? The buy it, fix it, sell it model. For our office buildings, for instance, when assets were 84% occupied, we were less enthused about selling. As our office buildings go into the 90s, it's a more interesting time for us to sell. The other thing relates to the capital markets. Today, it feels like a much better time. The REIT market's moved up quite a bit. The debt markets are quite robust. Particularly here in the U.S., I would say that's more likely to push us to move faster on that. We own big assets. It takes time. In some cases, there may be IPOs, which means we get a liquid currency, but we won't necessarily be sending out distributions.
I would say overall, though, I think for the big things, it's a function of capital markets. Right now, they're quite conducive. I think that'll be helpful for us realizing. They can change, right? Cyprus blows up, markets trade off, then you're put on pause. The good news is we generally own very high-quality assets. Our basis is well below replacement cost. We're financed reasonably. If we have to wait an extra quarter or two, that's okay. Things will turn out well in the end.
Hi. John Armitage from Egerton Capital. If you exit a large tranche of your successful real estate investments to public companies, as you hinted, how would you then think about your ability to add value to these listed investments in the same successful way that you've done to these assets when they're unlisted? Do you become more of a passive holder?
Well, we're generally not very passive in what we do. Steve can attest to that. For us, it's a range depending on the size of the stake we have. Last week I mentioned this German apartment sale. We own a 5% stake in the company. We're not going to be on the board. It's more difficult to influence, but we receive significant cash for our sale of our assets. When we take small stakes, we've done that with DiamondRock, a hotel company, and with Sunstone, another hotel business, with Brandywine in the office sector. When we take smaller stakes, generally that's a path to liquidity over time, and we'll sell the stock when we think it's the right moment. There's no real pressure. Sometimes there's lockouts. That's different.
If we end up owning a very large stake in a company, 50%-plus, I would expect us to be quite active, just as we are when the company's private, working with the CEO, having a big position on the board, influencing the outcome. I think it's a function of how much we own of those public companies in terms of how active we are.
Hi, John. Howard Chen, Credit Suisse. Since the crisis, your business has generated and widened such a material gap versus your competitors. I'm just curious, are you seeing any interesting trends in the competitive landscape from some of the new emerging competitors, and how is that impacting your talent pool and everything that you do?
Well, look, as everybody knows in finance or any business, it's hard to have this big a lead and maintain it. There are a lot of competitors out there who are very focused. There are a lot of very smart firms who may not have been in real estate or were in real estate in a small way. We see more competitors emerging. I think what we have, though, is hard to compete with. Our global scale, our reach, our relationship with our LPs, all of that makes it very difficult. I will say that our people are a key asset for us, and for folks starting up new firms, they look at our people.
The good news is, I think both because of the way we compensate people, but more importantly, the culture of our group and being part of our organization, we've generally been able to retain almost everyone. I'd say our best way to focus is by continuing to look forward, by not saying, "Hey, we're so much bigger. Aren't we great?" We wake up every day highly motivated. How can we expand this business? How can we do something in debt that we haven't done before? How can we do something in Asia? Have we done something in Latin America? Are there other places that we haven't taken advantage of our brand, our people, our market position, our relationship with our limited partners? Steve.
Yeah. One thing answering supplementary for John is that the investor base, the LP base, is not in love with the opportunity class. Many people have lost so much money for these people that they're basically allocating away from what we do into more core. When new people say they're competitors, and they show up, they're greeted with almost no enthusiasm just because the allocations for the area have been shrunk. When you look at the numbers that John put on the screen and take out ourselves from the money raising, just in the U.S., for example, and the money flows into opportunity funds go down 70%. Just because somebody hires a new person and says, "Hi, I'd like a little of this, too," it doesn't get much enthusiasm. They keep allocating to us because, in effect, we've made them proud.
That's going to last. John's more polite than I am. That's going to last for quite some time before those institutions. They're slow to change, and eventually, that'll get arb'd out. It's going to be a very long time before they embrace new groups with enthusiasm because the people who worked in those areas have been slaughtered. We're like the happy little positive people. We show up, and they go, "Oh, how nice to see you. What can I do?" It's extending across the entire world, where we're raising money at four to five times anybody else. Then below whoever that number 2 person is, there's a big gap.
It's a unique thing in my career where you just sort of dominate a class, and the more you're in, the more it's difficult for someone else to compete with you because they can't write a check. They just don't have the money to write the check. Then if it's even too big for us, we go around and we talk to our limited partners, and if anybody else tries to compete, the limited partners say, "Well, Blackstone's got so much more. Why would we work with them?" On a lot of things, it's sort of our price or no price. Not in every case, but more than you'd think. It's a really unique and wonderful situation that we've got, which I think is going to continue for a while. Do you want me to?
We have one last question.
Thanks. Michael Kim from Sandler O'Neill. Just curious, as you start to introduce more specialized strategies like Asia real estate, have the discussions changed at all with the LPs as it relates to kind of the transferability of some of the global funds' track records? What are some of the potential implications for return expectations given maybe more of a narrower investment opportunity set?
I think for us, we're not going to raise a fund unless we feel high confidence we can deliver the same results we do in the U.S. as we've done in Europe around the globe. One of the things we do, the people who run, for instance, our Asia business, we have four partners in Asia. They've been with us on average something like 12 years as well. Three of them have worked in either London and New York or London or New York. We have a lot of continuity, and we move a lot of our junior people around the globe. Also worth noting, we've been investing in Asia now for some time, so it's not we're just showing up and saying, "Hey, we want to do Asia." We've been quite active.
In particular, the last two years, I'd say we've been the most active investor in Asian real estate. I don't see it as somehow it's a niche strategy that we're pursuing something that's lower return. I'm quite optimistic about what can be done in Asia, given the dislocation. Places like Japan and Australia had a lot of leverage, like the U.S. and Europe, and places like China and India are still growing, but their capital markets have been much more difficult to access. We see the investment opportunities over there as very compelling. We're not going to pursue something that's going to generate subpar returns. Because if you look at what we've got here, if we start proliferating products and underperforming for our investors, then they're going to say, "Hey, I don't want to allocate to your global fund.
I don't want to allocate to your debt strategies." To us, everything we do has to be best in class, otherwise we damage the franchise. We're very focused on delivering great results for our investors. With that, thank you all very much.
Thanks for coming. Thank you for your support as shareholders. I'm excited today to talk about our private equity business. Today I'm going to discuss our strategy and what differentiates Blackstone's private equity business from our worthy competitors. I'm going to discuss our strong post-crisis performance, which I'm not sure is as well understood as it should be. I'll articulate our view of the current environment and what we're doing within it. It's certainly a tricky time. What defines us? How are we differentiated? We have a single global pool of capital, which allows us to stay disciplined in capital allocation. We've got a flexible mandate to pursue opportunities where they exist, and this is ever-changing. We are not a regional franchise operation. We have a single global investment committee that assesses risk reward across all geographic regions and across sector verticals.
We only invest when we can create value. We are not passive recipients of some market return based on our willingness to take a lower return than the next guy. I mentioned the flexible investment mandate in terms of region, sector, transaction type. Large cap LBOs, growth equity, energy infrastructure. Single global fund. This really allows us to maintain our discipline. Sometimes you don't want to be investing in Europe or in Asia, and we're able to allocate the capital according to the opportunity. We really leverage the intellectual capital across all of Blackstone's businesses. It informs every decision we make. We have global reach, which is a source of competitive advantage for sure in allowing us to both win deals and add value to the companies once we own them.
Offices on three continents, 33 highly capable partners with lots of continuity at the firm, and 126 investment professionals around the globe. Our portfolio of 75 companies generates $109 billion of revenue, cumulatively $19 billion of EBITDA, and employs nearly three-quarters of a million people. Take that all together and we're the 17th largest company in the world. In order for us to continue to drive returns that we expect and our investors expect, we must intervene in some way to drive value in these companies. My partner, James Quella, will talk in a moment about how we do this. It allows us to control our fate and drive higher returns. We have 23 professionals on staff dedicated to this effort. We have functional experts across key business areas that are in common, irrespective of sector.
Supply chain, procurement, IT, healthcare, and talent management, which is probably the most critical factor. We are trying to operate more, in certain circumstances, like a General Electric than a group of independent financial entrepreneurs. As we've evolved this capability over the last decade, what we've found is that each company has a need for a different type of skill set at this senior intervention level. We now, in all of our companies, hire a former CEO or CFO-level person who's a non-executive chairman or senior board member who is the key driver of intervention in our portfolio companies, supported by these functional experts. Not every executive has the right set of skills for the situation at hand for the intervention strategy, and we go out and we find the best person who's fit for purpose, and then leverage these people with multiple portfolio companies.
We have large-scale capital, and this is a source of competitive advantage. It allows us to support the growth of our companies with nearly unlimited capital for the type and size of companies we're investing in. Merlin is a good example. We start with a little GBP 100 million enterprise value company in 2005. Today, it has GBP 400 million of EBITDA and an enterprise value in excess of GBP 4 billion. We could not have done that unless we could show the ability to invest $1 billion behind this platform. It allows us to commit to larger deals where we have fewer competitors. We have a really successful long-term track record. On average, we put out a dollar, and we bring back two and a quarter or so to our investors. It's unique among the alternative asset classes where we can generate higher multiples of money.
On a net basis, compounded for 26 years, we've generated 15% net to our limited partners. An overview of our key private equity business lines. Blackstone Capital Partners, which is our single global multi-strategy, multi-sector, multi-geography fund. Blackstone V, with $20 billion of invested capital. We still have a few billion dollars left in that fund to support our portfolio companies, and $16 billion in Blackstone Capital VI, of which roughly 4.5 is invested. We have $12.5 billion of dry powder in this area, 107 dedicated investment professionals. Our key portfolio investments are companies like SeaWorld, as you just saw, Michaels Stores, Hilton, The Weather Company, Leica Camera, Merlin Entertainments, which owns the Legoland theme parks, the London Eye, Madame Tussauds, et cetera. These are large market-leading businesses, and they are all growth companies.
We tend not to buy broken things, break them up, cut costs, sell them off. We buy businesses where we can intervene to change the growth trajectory of the business through capital and management talent. Blackstone Energy Partners. We have been a long-time investor in the energy area. Given the multi-decade need for capital to enable hydrocarbon extraction in this country, we saw enormous opportunity, and we were beginning to over-concentrate in our basic fund, and we decided to raise a parallel fund where every dollar of capital invested in an energy deal comes 50% from the main fund and 50% from Blackstone Energy Partners.
We have a really terrific track record in this area, generating over three times our money on average in every energy deal we've invested in over the last 15 years, which was why we were able to raise this $2.5 billion pool of capital, of which 50% is already invested, and we already have terrific performance on that 50% that's invested. We have eight dedicated senior investment professionals, and we leverage the other 107 investment professionals in Blackstone Capital Partners. The three key strategies in this area are exploration and production onshore in the U.S., power generation development globally, particularly in renewables, and energy transportation infrastructure as embodied in our investment in Cheniere, which I suspect you're all familiar with, which is an LNG facility, the only one currently in the U.S. licensed to export natural gas from these shores.
Already convertible into the security valued at over two times our money. A new business opportunity that we've exploited to wonderful success, where we, as a firm, are uniquely positioned to create this product is called tactical opportunities. With the financial crisis, Dodd-Frank, the banks shutting down their prop desks, buying things off of their fixed income desks, side pockets in hedge funds where they could no longer afford the illiquidity, and the spread of our businesses, real estate, credit, corporate private equity, hedge fund investing, where Tom Hill's BAAM businesses is a key anchor in many hedge funds. We see enormous deal flow that does not fit the core criteria of our basic products, buying a company, buying a building, making a loan.
There are many things like regulatory capital trades or mortgage servicing rights or non-performing loan portfolios that we just couldn't take advantage of but that we saw with regularity. We've raised approaching now $5 billion from our largest limited partners to take advantage of these opportunities. It fits their needs in terms of return profile and liquidity, and it's uncorrelated to what's going on in the rest of their portfolio. This is a terrific example of innovation of Blackstone leveraging the footprint that's been developed over the last 30 years. Back to the organizational structure of our private equity business. The scale one needs to operate in private equity now is enormous.
It's virtually impossible for a few smart guys to spin out of a firm and compete with the global reach, deep sector domain expertise, the people we're able to recruit, the portfolio operations intervention we can have. This is no longer a cottage industry. You must have global scale, and you must be able to invest in all of these areas of competence. If you look at the functional areas of our firm, we've got 23 deal partners globally that are supported by over 100 investment professionals on three continents. We have 46 people that are dedicated to us in certain sector areas. These aren't necessarily full-time people, but they're people like Jim Albaugh, who was the number two at Boeing, who ran their commercial aircraft division, who's advising us on aerospace and defense. We have nine country advisors.
These are people networked in their local areas, places like Spain, who bolster our geographic coverage. We have 29 dedicated marketing people. This is an incredibly important function. It allows us connectivity to our limited partners. It allows us to leverage one relationship in private equity or real estate into other products. I think there was a remarkable slide yesterday that the person who runs our real estate debt business showed, which was new investors to the debt credit product that converted into our other products. It was an enormous thing. People we had never had investing in the firm who invested in this one credit product, who now invest across our businesses. This marketing organization is a source of enormous competitive advantage for the firm. I've spoken a lot about portfolio operations, our dedicated people, our functional experts, and James will spend more time on that.
Our presence in Asia and South America, through our relationship with Pátria, allows us to both win deals and add value to these companies in ways we couldn't. Many of our Western deals, companies like Leica Camera or Jack Wolfskin, which is The North Face of Germany, are actually Asian growth deals. They're tapped out in their core Western markets. They have no ability, no scale to enter Asian markets, we add that. Even though we may be seemingly less active in indigenous Asian deals, much of what we're doing in the Western world has an Asia focus. We have advantage. This is a slide we've shown for as long as I've been at Blackstone, 16 years, and it's unchanged. We are able to take from our other businesses the intellectual capital and use it for goodness in our core private equity business.
We've done many joint deals together with John and his team in real estate. All of them have been successful, each one of them have had an above-average return than our independent deals in either fund. Companies like SeaWorld, where we've made three times our money. In the U.K., we consolidated the care home sector, the pub sector. All of those were above-average return deals. We worked together with GSO both as co-investors and as us lender, them borrower. For example, on SeaWorld, we bought that in the summer of 2009. There was no credit market. Goldman Sachs led a mezzanine facility for us, GSO participated. Without GSO, I'm not sure we would've gotten that deal done. Restructuring and M&A advise many of our companies, they're a source of deal flow for us.
In hedge fund solutions, with Tom and his team being the anchor investor, many activist investors, there are no better deal catalysts in this world than activist investors, we spend our time trafficking in deal catalysts. That's helpful to us. This is illustrative of our ability to invest a dollar and bring back two and a half, which is what we've been able to do on average over the 26 years that we've been investing private equity. This generates 15% net returns in aggregate over 26 years. Our hold periods are slightly longer than in real estate or some of the other products. The ability to generate large dollars of capital gain and therefore carried interest on large dollars is in evidence here.
In the recent funds, Blackstone VI and BEP, this is the multiple of money on the deployed capital, and it's already at a markup, even though these are new vintage funds, and the IRRs are extraordinary. I think it's important to look at how we've done over the last 15 months or so, and the answer is very well. We've returned nearly $6 billion of capital to our limited partners. The IRR on our funds on all the capital invested, much of which is newly invested, is 19%, and we've deployed $4 billion since the beginning of 2012. We're harvesting the value that we've created through the cycle. In the last 12 months, we've generated $5.2 billion of liquidations to our limited partners and nearly $11 billion over the last three years.
These liquidations are coming at large multiples of money, consistent or better than our historical performance, 2.8 times our money on these realized investments. Let's turn to the market for a moment. What's been happening in the private equity market since the crisis? A lot of what's happened in the U.S. is sponsor-to-sponsor deals where somebody's buying something from us or vice versa, and take private transactions. That's 70% of the market activity. We have pivoted in a different direction. We're overweight energy, which is 37% of the capital we've deployed. We're underweight sponsor-to-sponsor deals where our ability to intervene and drive value is less apparent. Over 50% of the capital we've deployed is in growth equity, platform deals where we're consolidating a sector or making out on acquisitions or in energy development transactions like Cheniere and E&P. How does this look in practice? We're thematic.
We try to identify narrow seams in the economy where there may be growth, like energy, in an overall lackluster GDP growth environment, or where we have some domain expertise that allows us to see an inefficiency, like a cycle play. We bought and restarted some oil refiners in the U.S. in 2010 and 2011, and we took this company, PBF, public, as you all may know, at the end of 2012, and it's currently trading at nearly five times our money. The whole natural resource extraction theme, which is well-known, and we've been participating in for the last four years. Many of these investments are at substantial markups to our invested cost. Non-core corporate divestitures, which is probably the most attractive seam to mine for us, which is where SeaWorld came from. I'll talk about that in a minute. These are under-managed assets. They haven't been allocated capital.
They haven't attracted the best management. And consumer banking, where the banks have largely exited this market. Somebody who needs a loan, who doesn't have the best FICO scores, has many fewer places to go. Given the funding costs, the net interest margins are extremely attractive. What I'm particularly proud of is our performance on the $10 billion of capital we've invested since the summer of 2008. Already fully 40% of that, so nearly $4 billion, has some form of realization event, an IPO or refinancing at 2.7 times our cost. The question of can a large-scale, multi-strategy, global private equity platform continue to produce the types of returns that we'd produced historically? The answer is yes. Let's talk about something near and dear to me, and a great example of how the firm takes advantage of opportunity and generates good returns to its investors.
In 2008, InBev borrowed $50 billion to acquire Anheuser-Busch. Anheuser-Busch happened to own a theme park business which has nothing to do with selling beer. After the financial crisis, InBev decided it needed to pay down debt. It was compelled to sell non-core assets. We happened to own almost every theme park outside of the United States in our little Merlin company. I flew to Leuven and talked to the CFO and said, "We are the only buyer for this asset." They said, "Thank you very much. We disagree. There are many buyers." The crisis ensued. They finally decided they needed to sell the asset. We were able to buy it in the summer of 2009. The transaction closed in December.
The price was set, however, in August for 6.7 times EBITDA, an historically low multiple for a real estate-based, irreplaceable collection of assets that had real brand IP. We added value. We carved it out from Anheuser-Busch. We stood up all the independent standalone business functions. We augmented the management team with this sort of non-executive chairman talent I mentioned, someone who had terrific marketing expertise. We made really sizable investments. More than had been ever made in the history of this company over a three-year period, we made in the basic fabric of the business through new attractions, infrastructure, shows. We revised pricing, improved the food and beverage and merchandise strategies. We increased EBITDA from $363 million the year we bought it to $415 million. On the realized part, we got lucky.
The comps traded up on the back of really good performance and resilience through the cycles, Six Flags, Cedar Fair. We have unique asset quality relative to those. We took this company public a few weeks ago. We upsized the offer. We priced it at the top of the range. It trades at 10 times EBITDA. We've made roughly three times our money for our investors and our co-investors on a large investment, $1 billion of capital invested between our funds and our limited partners, which keeps them very happy, as you might imagine, since we're not charging them for that co-invest. What's the macro outlook for private equity? We operate in a very highly competitive market with extremely competent people competing with us. We do believe relative calm will prevail. Markets will remain robust as liquidity washes in. We will sell very aggressively into this market.
While we're in the midst of an economic recovery, growth is going to be structurally lower than in past recoveries. It just must be so. Fiscal deficit reduction is happening. Structurally higher tax rates is a reality. Consumer deleveraging, or at least the inability to releverage. Interest rates at some point will go up. All this stuff is a drag on growth. GDP growth, maybe it was 5%, 6% at one point. It's not going to be that in my opinion, in our opinion. We've got unsustainably low interest rates. Certainly a credit bubble in the sub-investment grade corporate credit market. We've never been able to borrow more and more cheaply than right now. This makes us believe that it's a dangerous environment to be investing in. We have to price in margin for error.
The single biggest assumption we make in any investment is the multiple of cash flow at which we can sell the company, we have less visibility on that than we have had previously. We're just pricing in margin for error. Hitting on our philosophy, as I've mentioned a bit, we're not passive recipients of the market return in some big Goldman Sachs auction where I'm just willing to take a lower return than the next guy. We've got to be able to intervene. Strategically reposition the company in some way, restructure it operationally, a cycle rebound about which we have real proprietary insight, like in oil refiners, where we had owned, in the last cycle, a collection of assets that made us a lot of money. An industry-wide or company-specific dislocation.
Where we can swoop in and price our capital appropriately rather than being a price taker, we're a price maker on our capital. Corporate partnerships, which has been the stock and trade of our investing strategy for many years, where we partner up with a corporate to buy and improve an asset. Capital is scarce and precious. We have a way to put the money out mentality. Unlevered returns matter. Mathematically, you can make IRR math work when you have only 15%-20% of the enterprise value in equity. We think about the return on the entirety of the capital structure, because in times like this, with cheap credit, you can lead yourself into a rabbit hole that's hard to get out of. We need to be bold in times of volatility and uncertainty.
We did it with SeaWorld and many other investments in that vintage, which has delivered that $4 billion of investing that, post-crisis, already has some form of liquidity event. Excellent management is a key success factor. We are uncompromising about this, and we invest substantially in our capability to upgrade management talent. We've talked a little bit about how we're investing on previous slides. Let's go to our current investment themes. Energy and natural resources. This is a multi-decade, in our opinion, investment requirement where the need for capital is extremely robust. You don't have exposure to this at your peril, in our opinion. It's a bit like the telecom infrastructure build-out in the early '90s with broadband and wireless, that sustained really high return investments for us in particular, over many years. Where we can innovate and drive growth in our portfolio companies.
I mentioned Jack Wolfskin and Leica. Vivint in this country, which is a home automation, home alarm monitoring, home solar business that is really a quickly growing business that we're helping professionalize and providing more access to capital to grow. Deep value in special situations. Knight Capital is a good example. I'm sure you're familiar with what happened to them. We happened to be looking at the company at the time. It was part of a theme we had in financial technologies. They were going to go out of business over the weekend. We were there to provide the capital along with some of its customers. Too bad it was a small investment, $85 million, but we've already made close to three times our money. Consumer finance, as I mentioned, where the banks have come out and there's a dearth of capital and we're filling the void.
What's next for us? We're uniquely placed, really, among the businesses at Blackstone to generate these large multiples of money, and we are squarely focused on doing that. If we do that, we will produce enormous carried interest dollars, which will represent a large chunk of the firm's earning power. We are committed and focused on doing that. We have significant undrawn capital, which places us in good stead relative to our competitors who are fundraising. It's a tough environment right now for fundraising. We have successor in energy and global funds that will be in the market over the next few years, but we're not rushing. Recently, a really exciting new initiative is the secondaries private equity business. A team that we've known for a long time that's come to our firm from Credit Suisse.
We think we'll be able to help them grow in areas like real estate and credit. New initiatives that we're considering in growth equity, which the limited partners certainly like, where our flexible model we can leverage into that area. Small cap and sector-specific funds. Our main goal is to really be a major driver of Blackstone's ENI and distributable earnings. Thanks very much.
Ladies and gentlemen, if you have a question, please raise your hand.
It's Marc Irizarry, Goldman Sachs. Just on the sector-specific fund and some of your innovations in private equity. If you think about the need to put capital out, LPs returns that they need to generate. I think one of the issues, you mentioned that when times get tough, you like to deploy capital.
Yeah.
Can you talk a little bit about liquidity for the LPs and how important that is in private equity investing initiatives like Tac Ops and secondary PE,
Yeah
what role that might play and what the future,
Right
might look like.
That's what's so attractive about Tac Ops and the secondaries business, because there's more liquidity. Our limiteds give us their money knowing that it's illiquid, and they're happy to have the money working, out working and compounding. There's a limit to that. In other words, after five, six, seven years, if you have no realizations in a fund, they start asking you to show them the money. In general, that's part of the bargain. They understand we're going to deploy their capital in an illiquid situation and generate these higher compounded returns. They like the Tactical Opportunities, which is a little more yield, a little shorter hold period, and uncorrelated to what we're doing in the other areas. That's why we've been so successful with that. On the secondary side, they put the money to work like that because the money's already deployed.
They're buying LP interests in funds, more or less fully deployed, they're already into their realization cycle. They're bringing the money back much sooner than we can in the primary business. Again, the multiples on the money are lower in terms of returns. It's a really terrific complement to our private equity business and allows us to offer a neat package of stuff to fit liquidity and return thresholds.
Hi. Bill Katz from Citigroup. Thanks for taking the questions. Two-part question. Could you talk a little bit about the competitive environment? I think you did a little bit
Yeah
prepared remarks about from pricing, you're seeing some club deals show up and maybe even Dell as a seminal transaction, sort of maybe a little peaky in nature. I was really curious from that perspective of how you're pricing deals and that discipline.
Yeah.
Secondly, a totally different question, from the allocation perspective from LPs, are you seeing an increase in the allocation given what's happened with the markets or a decrease? Thank you.
Sure. That's a good question. Our discipline on returns is if we invest a dollar, we need to return two and a half in a base case, and with scope to do better. That hasn't changed. Perhaps it takes us a year longer, instead of a 22% IRR, it's a 20% IRR, but our basic model is unchanged. We have to be able to produce these kind of absolute returns. We have an 8% hurdle, of course, and recoup the fees. We haven't changed our return criteria. The club deal, it's really just circumstantial. If there's a large deal that fits the bill of what I've been talking about for the last 30 minutes, we're more than happy, and it's too big for us, and maybe our LPs can't move quite quickly enough because we'd love to bring them in as co-investors.
We are more than happy to team up with our competitors. We have many successful club deals. Nielsen is a good example. TDC, another good example. It's really circumstantial. It has nothing to do with a strategy change or a new era of large deals. We're opportunistic. We'd rather control things if we could, but we're really driven by the opportunity. In terms of our LP, I think your question was, are the LPs allocating more money to our area or not? I think the answer is in the short run, individual fund sizes for many of our competitors is coming down because the returns haven't been there. Longer term, as you can see from our own recent performance, the proof of concept of private equity is there, and they'll be allocating more capital because it's hard to find return in a zero-cost capital world.
We feel quite confident that when we go out in three years' time or something to raise BCP VII, we're going to have a receptive LP community. This moment, it's hard because you've got a lot of guys raising money, and you have pretty poor trailing performance.
Last question.
Thanks. It's Mike Carrier at BofA Merrill.
Hi.
Just a question on, not necessarily like future returns, but more on past investments. If you look at just some of the investments in BCP V-
in terms of what else can be done on some of the investments, not like a SeaWorld, but like the ones that are more challenged-
Yeah
that you could still create value. If they're under cost right now, you can generate more attractive returns over the next two to three years, whether it's on the financing side, the efficiencies.
There's three or four large close to $1 billion equity investments in BCP V still, which are healthy. One of which is Hilton, which is more than healthy. It's doing really well. That will be something we look to monetize over the coming years. For some of the other ones, we are, and James will speak to it in a minute, intervening in these companies either through M&A or driving operational performance to try to create a lot of value still. There are a few of those investments that I think will be successful and potentially above the 8% hurdle. We haven't given up on any of these big investments. We haven't lost the option on any of them, which is really important. Got to stay in the game.
We have examples in previous funds where we've held things like Universal for 11 years and ended up making three-plus times our money. We think on a few of these, we will get lucky in that regard, and we have staying power. Great.
Thank you, Joe.
Thank you.
Over to you.
James Quella. I'm here to give you an anatomy of our portfolio operations capabilities. I won't go through all the slides that I have in detail. You can look at them at your leisure, but I will hit on the high points of each slide so that when you go back and look at them more carefully, you'll understand how our team is inextricably linked in the way we create value at private equity. Our mission is quite straightforward. At the front end of all of our deals, where there is a meaningful operating step function change, our team is involved in identifying operational and strategic performance opportunities that allow us to gain the full potential of a company. A couple of good examples are Nielsen, where pre-deal, we identified over $250 million of opportunity.
Michaels, similarly, magnitudes of hundreds of millions of dollars, which became a part of our investment thesis. We also work very carefully with the management teams after we buy and work hand in glove with deal teams and management teams to realize that full potential. In the process, we build strong, competitively viable corporations whose exit allow us to market growing enterprises with strong, competitively viable growth paths, and with lasting value for both our LPs and more importantly, for the next buyer. We do not buy distressed assets. Our fundamental investment philosophy is to buy companies that are under-managed, with leading market positions, strong brand equity, but where the full potential of the company has not been realized. That's where the deal teams, the management teams, and our portfolio operations groups come together to take these assets and realize their full potential.
We are able to do this on the basis of the scale and the breadth of our portfolio. By virtue of having such a large portfolio, we're able to afford having world-class people in our portfolio operations team, and the ability to create repeatable processes through pattern recognition of having seen over and over and over again, whether it's in industries that are manufacturing-oriented or services-oriented, whether they're industries that are located in Asia or North America. We have come to understand that there's a playbook, and that operational playbook gives us the capacity to move swiftly and with great certainty that we can facilitate change in a period of our holding and realize the value within our holding period successfully.
There was an independent study done by BCG and Goldman Sachs that identified that private equity value has now inexorably shifted away from leverage and financial engineering only to include the ability to bring about operational improvement, and certainly, that became very apparent in the period of 2008. I'm very happy to say that we had some prescient senior management at Blackstone because we actually started our process of building an operational capability in the year 2004. When I joined Blackstone, it was a little bit awkward to walk into a portfolio where everything was growing, everything was efficient, and our multiples were expanding. The fact is that we still had the opportunity to make good companies better and better companies great.
As you can see, our recent performance in 2013 is a very excellent balance between driving growth, which is an important ingredient when our exit is at time because we get better multiples on growth companies, an equal measure of productivity, and we have a very unique capability because of our scale in driving platform initiatives. These are initiatives where we use the full leverage of our Blackstone buying power to drive group purchasing, Equity Healthcare buying, and medical benefits and sustainability capabilities. The bottom of that platform is, as we think of it, free money that comes from our scale, and the other initiatives are designed working closely with management teams. Our organization is actually quite simple. We, along with the deal partners and management teams, have a highly integrative approach to portfolio operations transformation.
Our deal teams are organized largely around strategic industries where they look at industries' value. They bring intellectual capital and intellectual property to valuation and trends in the industry. We, on the other hand, cut across industries with functional excellence. Our team is organized around centers of excellence, which are designed to cut across industries and geographies and bring to bear these repeatable processes, whether they be in Lean Six Sigma, information technology, pricing, sales force, productivity, talent management, leadership. These ingredients are universal across all companies, and that universality cuts across the scale of our portfolio, and we use the repeatable process and the tried and true excellence of our team to bring, where appropriate, the right balance of industry trends and operational improvement in order to reposition our companies to maintain and grow in the full potential of those companies.
We have across both dedicated individuals in our portfolio, as well as CEOs who act as executive advisors and executive chairman, and a group of individuals who sit outside of Blackstone who are actually not employees but are, if you may, back-office utility to our platforms in group purchasing and in Equity Healthcare. In aggregate, 73 full-time employees who wake up every day and whose job it is to drive value in the portfolio, to improve top line and bottom line, and to execute against the full potential plan. Our team is long in the tooth. We like to think of them as people with high degrees of pedigree, already established by working in companies like GE, Unilever, Kohler, BCG, Tesco, Procter & Gamble.
We have a joke in our team where if you're not carrying an AARP card, you probably qualify to carry an AARP card because we've actually brought in people who are already world-class and have in their portfolio a well-maintained and well-understood track record. When we walk into our portfolio, we are actually talking peer to peer with our management team and actually driving the kind of change that would be expected. Just to give you a quick example of how we exploit our sustainability in a platform initiative. Many years ago, we looked at our healthcare portfolio of expenditures. We found that we were spending well over $2 billion in medical benefits in the U.S. More troubling was that the rate of inflation in wages and in regular inflation was running over the period of 1999-2005, around 40%.
The rate of inflation in Medicare premiums and health premiums for employers was over 100%. The gap between ability to pay and the amount that needed to be paid was widening at an alarming rate. As you can see on the bottom half of that chart, we projected that from the period of time that we looked in 2011, that something like 12%-15% of total GDP would be consumed by healthcare. That is expected to grow to 50% of GDP in the year 2023. This was an area where we felt we needed to focus. We brought an innovative approach that can only be obtained by having PE innovation and scale of a portfolio. We built something called Equity Healthcare.
Equity Healthcare is a wholly owned LLC that is a nonprofit organization that is run by Dr. Robert Galvin, who was formerly the chief medical officer of GE. We launched this in January 2009. We not only made it available to all of our portfolio companies, but we also made it available to other portfolio PE firms in order to gain the scale. Today, we have over 330,000 members who are part of the Equity Healthcare portfolio. The bottom line is it's plug and play. As soon as we buy a portfolio company, they're able to join Equity Healthcare and gain the benefits of us having leverage in driving down administrative costs, but more importantly, an engagement model that allows the employees and their families to make better choices, wiser choices, and lower cost choices on healthcare.
The effect of that is higher quality, lower cost, and more satisfaction. We have been very successful in driving our Equity Healthcare program. As you can see, we started out in 2009 with what we thought were pretty exciting changes in our healthcare trend. The average was around 10% in the economy. We got to about 6.8%. What we didn't realize was geometrically, by continuing to press deep into our portfolio, raising the awareness of our HR organizations and the way in which medical benefits were being consumed, that over time, we would get greater and greater traction. Of course, with Obamacare being a tsunami coming over the wave of our healthcare costs within our portfolio, we are now actually very well-positioned to integrate Obamacare into our portfolio, which is going to have a massive impact on the overall spend of healthcare in the U.S.
We believe we're uniquely positioned to handle that. What we found in 2011 was that in a world of the U.S. where the average corporation was looking at an 8.7% inflation in their healthcare expenditure, in our portfolio, we had 0% medical inflation, with 97% employee customer satisfaction and with no diminution in the ability for our employees and their families to get the proper care. What we were able to do is bend the trend by education and engagement, which is, we believe, unique in the U.S. We're able to build that on the back of the leverage of our portfolio and its size. This chart is quite complicated, but it actually can be explained in a very simple way, which is I'd ask you to look at the three vertical red lines.
Those are the platform initiatives that I explained to you earlier that generated $150 million of cash flow and EBITDA over the course of 2013. Group purchasing generated $80 million this year, 2012. Equity Healthcare, which I just described, generated $50 million of incremental EBITDA in 2012. The sustainability program is generating $25 million. Those three vertical platforms represent initiatives that we cut across the entire portfolio. If you look horizontally, you'll see some red lines called Catalent, DJO, Michaels Stores, Freescale Semiconductor. There was a question earlier in Joe's discussion, are we working on those portfolio companies that may be below cost? I can assure you that Freescale and other portfolio companies that are not yet at the return we want get full attention, and they're getting full attention from all areas of our portfolio capability. We are driving those initiatives in a, what we call, transformational manner.
What that means is we're touching every element of the business model. We're bringing to bear the full integration of our operations team and management to turn around or to realize the full potential of those companies. As you'll note, those horizontal lines of transformation are almost invariable with the investments that we have $800 to $1 billion of invested capital in those investments. What I'd like to do now is give you a synopsis of how we go about doing transformation with a case example from Catalent. When we bought Catalent, it was a very neglected and, quite frankly, very undermanaged and very undercapitalized division of Cardinal Health.
One of the things that Joe and our investment committee have come to understand through ex-post and pre-post analysis is that one of the most attractive investments as a category we make is when we find divisions in large corporations that have been neglected, that have strong bones, strong market positions, but have been neglected by senior management of the corporation. We are able to see the opportunity to bring full potential to those investments and build out a company who's in the portfolio, not attractive to the corporate buyer. We get it for a good price. SeaWorld is another example. We were able to take that company and turn it into a standalone winner. When we bought Catalent, it basically was a margin plus utility for the pharmaceutical companies. The big pharma companies would come and say, "Toll manufacturing in pharma.
We'll pay you $1.98 per unit of manufacturing costs. Your margin can never go up. There's no value added, you're a commodity player and you're a price taker. Our investment thesis was to transform Catalent and make it a value-added pharma partner, where we could employ and deploy our technology and our innovation and get above-average returns. However, in order to do that, we had to fundamentally and structurally change the entire business model. Coming out of 2007 and 2009, we took a couple of years to evaluate what we had, what we realized is that we had a collection of businesses, some of which didn't even belong in the portfolio, including the packaging assets of Catalent, which were very low margin, very commoditized, of no interest to pharma companies.
What we also understood was that we were not fully exploiting the capabilities of our core pharma manufacturing capability, more importantly, we were not delivering on the two most essential aspects of building a company to its greatness: cost leadership, quality, reliability of manufacturing, and commercial excellence to invest in innovation. Those were things missing in the Catalent genes. We, in 2009, took it upon ourselves to undertake a massive transformation of the entire company. True North is leadership upgrades. In every one of our portfolio companies, the first, second, and third question is: Do we have an A-player CEO? In the case of Catalent, to bring about the transformation we needed, we recognized that we did not have the A player. We had to go out and find the new CEO who could deliver on the full potential plan.
We brought in that CEO, within six months, virtually everyone in his senior management team was gone. We have today in Catalent, about three of the former senior management team members that were there in Catalent when we bought the company. That led us to being able to then execute a plan which incorporated all elements of transformation, working closely with our team. Jeff Overly, who's our Lean Six Sigma specialist, goes into a very substantial operational excellence program working with the operations team, you'll see that we drove productivity in all aspects of our manufacturing and quality capability. This was key to establishing cost leadership and reliability of delivery to our pharma companies. First and foremost, to build a growth company, you have to be the cost leader, you have to be reliable in your delivery of quality.
We have a very strong operations team who knows how to drive that playbook with Jeff Overly and others. Working closely with Catalent, we brought about substantial improvements in on-time delivery, drove productivity in raw materials, drove productivity in worker capability, had on-time delivery for our capability in manufacturing. That allowed us to then grow in our acceleration of commercial excellence, we were able to take the funds that we were able to achieve in our productivity and invest them in marketing and sales. We substantially upgraded our capability to both market to our pharma companies, to build principles around which the marketing organization would build value propositions, more importantly, sell that value proposition for the right price.
If you look at the upper right to you of this chart, within a very short period of time in our transformation, we backward engineered the value of our technology that we were selling as a utility and as a, if you may, cost plus margin. We said, "The value of our technology to you is worth substantially more in your end product, and you get better pricing as a result of our innovation. We want to capture some of that economic rent." We re-engineered their economics, helped them understand how our technology and innovation allowed them to go to market with better pricing, and we captured that value in $30 million of pricing changes in the portfolio.
We moved from the cost plus margin player to the value pricing player with our ability to show we had excellent operating capability, extraordinary commercial excellence, but more importantly, a value-added product that we should get paid for. Catalent has expanded its margins substantially. What does that allow us to do? It allows us to invest in innovation. Catalent now has over 1,300 patents. We've beefed up our innovation team to well over 300 people. We are now considered a strategic partner, not the manufacturer toller, but the strategic partner to big pharma across the world. All of this sounds very exciting, and certainly, one would expect that there would be good results that come from this. Let me show you, in fact, what happened. When we started this journey in 2009, Catalent was declining on the top line and declining on the bottom line.
As a result of the transformation with the leadership upgrades. The activities of our portfolio operations team and the activities of our deal teams over the course of the last four years, year-on-year, double-digit growth in EBITDA, top-line growth, and I guess due to all kinds of restrictions, I can't tell you what the future looks like, but I can assure you that between now and 2016, we have a roadmap and a pipeline of increasing top-line growth and increasing bottom-line growth. The beauty of building this kind of platform is that it also allows you to do acquisitions. You'll see on the bottom of the page, we've been able to execute several very accretive tuck-in acquisitions because we are now the buyer of choice. We are now the market leader that anyone who wants to be in this space wants to sell their assets to us.
We know we will exit Catalent at a very attractive MOIC. We know that it's going to be a growth company, and we know it's going to have a solid platform of operational and commercial excellence. When we bought it, I can assure you it was not this company. That's the way our portfolio team works with our deal and operating teams at management. I'll open it up for a few questions if anyone would like to engage.
James, we're actually short on time.
Okay.
We are going right to the video. Thank you very much.
My name is Tim Coleman. I run the restructuring business at Blackstone. The video you saw before mine was John Studzinski, who runs the M&A business. I'm going to be covering both businesses. We felt we worked so much together that it made sense to profile the businesses together. I think we'll, in this presentation, sort of demonstrate what I'm talking about. In terms of both businesses, we actually provide something that isn't provided much on Wall Street anymore, which is sort of old-fashioned advice, the old way. We don't sell debt. We don't sell equity. We don't have products. The only thing that we provide are ideas. Our clients are often needing very creative solutions, very difficult solutions. The days of the simple M&A transaction or the easy bankruptcy are pretty much gone, anything you see and read in the newspaper today.
We're giving what we think of as brave advice, just what we think, not something that we can sell. We find that very few of our competitors are doing that anymore. For the most part, they are looking to sell a product to somebody. We walk in and all we have are our brains. As mentioned in John's video, we have old guys. We have people that have on average over 20 years of experience in the business, both in the M&A business as well as in the restructuring business. A lot of industry expertise, frankly, in both sections. Obviously, we have industry verticals in the M&A side, but in the restructuring side because we've become so close to our clients and often industries go through cycles, we end up also as industry experts.
We're very dedicated to senior-driven relationships. What you see with us is senior guys doing the work, which is again, a little unusual. Because of where we come from, we have an investor mentality. We know how Blackstone thinks. We end up representing a lot of owners and private equity owners, and I think that helps us give them advice and think about how they think about what they're looking at. We have a very big network, and we're able to bring Blackstone to every one of our assignments. Our practices really complement each other, as I said. What we find is when the global markets are up, the M&A business is up, and when the global markets are down, our business is countercyclical to that. We see a big collaboration and exchange of expertise between the groups. In 2012 alone, we worked on 19 major deals together.
You know a lot of those names, L.A. Dodgers, Greece, Lee Enterprises, a whole series of them, and I'll point some of them out to you later in the talk. Despite all these economic headwinds and volatile markets, we in the restructuring business had our fourth-best year ever. That, if you took out the crisis, would be our best year ever. In terms of advisory, fourth quarter, their best revenue year ever. We both have very strong pipelines for 2013. As mentioned, much of our skill sets overlap and complement each other. In restructuring, we concentrate heavily on out-of-court deals. Our market share is very high in that space. Advisory has two really leading businesses. One side, straight advisory work, M&A, et cetera. One side, capital and structure advice and financing advice. You can see on the left side of the screen the restructuring pieces of business.
What you see is there's a lot of overlap, and really, each side can pretty much do what the other side does because of all the work that we've done together. Let's look at advisory first. In the U.S., M&A volume, as you all know, has been down really since the crisis, since 2007. Q4, as I mentioned, a real sign possibly of a revival and upturn. All the tools are in place this year economically. You see very strong capital markets. You all know a very strong equity market. We expect that, therefore, to produce a relatively strong M&A market. Europe, different story, and I think you know that story too. A lot of turmoil there. Still a lot of turmoil. Banks are still trying to decide what they're doing with their portfolios.
A down year for M&A, a big up year for restructuring, and a lot of the business for 2013 we expect to see in restructuring as it was in 2012. Asia was also down. It doesn't necessarily make a lot of sense. There's a lot of cash over there, a lot of players, and we think they could be interesting for 2013. In terms of a revenue breakdown, we're really, frankly, strong across all industries. Tech, FIG, energy, metals and mining, and media really lead the way, but all industry verticals are covered and covered well. Geographically, we are strongest in the United States and second in Europe. We have a very strong team over in Asia. I know Studs has been over in Asia, actually, I think for the last month, generating a lot of opportunities in business.
It's a piece of our business that we expect to see continue to grow. As you can also see, the M&A people spend a lot of time on the large cap side and 66% of their time in the M&A business. In terms of deals, we just put a smattering of them up for you. You can see, again, lots of industries, big names, household names, large dollar, large cap items. The 2012, again, tough year, but they ended up doing exceptionally well. Let's look at the outlook. As I said, 2013, we expect to be strong. The markets are lined up to help. We're looking at natural resources, FIG, tech, consumer, and industrials as some of the strongest industry verticals, as well as private equity as being another big opportunity. We've put a lot of work into building our geographies and our different industries.
You'll see that we've added people in the industrial space, in the FIG space, and in the healthcare space. Germany and China are areas of emphasis for us, we are continuing to grow in those spots. Pátria, our partner down in Brazil, has been a great partner and a great linchpin for us down in the South American market generally. All right, let's turn to restructuring. Restructuring business is typically highly correlated to the high yield market and to the default rates that come from that market. Typically, when high yield is up, we are down, and obviously when default rates are up, we're happy because our business is typically up. When you look at 2012, we had sort of contradictory markets. We had, on the one hand, weak economic performance, European problems.
To talk about the fiscal cliff seems sort of odd because it seems a long time ago already, but it's not that long ago. Weak unemployment, general uncertainty, slower Chinese growth. On the other hand, maybe people in this room, investors chased yield. They looked for record high yield. It caused record high yield issuance and record leverage loan issuances, which normally would cause us a lot of trouble in our business. The consequence of all this, loosened debt terms. We see dividend recaps, PIK toggle, covenant light, all the things you saw pre 2007. As a consequence, what used to look like a maturity wall for our business, 2013, 2014, 2015, has flattened out and, for the most part, been refinanced.
Most of what we're working on today are companies that either were already in trouble, got in trouble through their industry, or they were unable to push that maturity wall out. This market is great for most of Blackstone, not as good for the restructuring business. Surprisingly, as I said, it was our fourth-best year. While bad market, it turned out to be okay. We've made an effort to decouple our business from the restructuring cycle. We've achieved that in 2012, I'd say really for the first time. We think we're on track for that for 2013. I think it's a result of one thing and one thing only. We have a very, very deep bench worldwide. We have seven partners, 11 MDs and directors, and six vice presidents, which has really put us in a different position than most of our competitors.
Some of our competitors are finding turmoil within their own firms or their own business. That is working to our advantage with the kind of people that we have working for us. Our business has gone through a change. If you looked at this chart, maybe say five years ago, you see out of court is 43% for 2012. If you looked at it five years ago, that would probably be 5%. The business has grown dramatically out of court. We are a leader in that business. We think we're number one market share. There's not a way to measure it. By definition, it's out of court, so it's not necessarily being measured by anybody. We have grown this to be almost 50% of our business, which we're quite proud of. When we started at Blackstone 22 years ago, we were primarily a shop that did creditor business.
That came from our founder, Art Newman, coming originally from Ernst & Young through Chemical. We built that into an almost all debtor business. We looked at that about four years ago and decided we didn't want to be just one or the other. We worked hard to reestablish that balance. As you can see, from a revenue perspective, 59% company, 43% creditor. The creditor side of our business has really changed. A lot of times it's the creditors driving the deal versus the debtor. We find that we can have a lot of fun and make a lot of money in that space. Industry-wise, I mentioned we're across all industries. These are the big ones. Media being the leader at 22%. We do a lot with Peter Cohen in the M&A group. FIG has been a very big business for us since June of 2007.
Technology and telecom, big. Gaming, energy, all of those terrific pieces of business for us. Here are some of our names. I was looking at it before coming up here trying to think which ones have we collaborated on with other people within Blackstone. I think it's maybe only Mohegan that we didn't collaborate with somebody. Across the board, somebody in this firm ended up working with us, maybe Patriot Coal also. A very successful use of the Blackstone brand and the Blackstone brain. I'm proud to tell you, for us, it was a big year from a recognition standpoint. The IFR awards are the biggest deal for us, for most bankers. We won both Global Restructuring House of the Year, and we won U.S. Restructuring House of the Year. I think it may be the first time it's ever happened.
Certainly, it's the first time it happened for us. Very excited. Thomson Reuters recognized us as the number one in completed U.S. restructuring. Probably won't happen again. Don't get used to that trend line. We were thrilled to produce it. In terms of outlook for our business, we expect this year to be somewhat similar to 2012. We're obviously quite a ways into 2013 with a very strong capital market and equity market. As you know, records were broken in the first quarter for both high yield and leverage loans. We think we'll see inflows and outflows. Ultimately what we'll see is a strong economy. The default rate range there of 1.5%-3.7% is sort of interesting. I don't think we'll see anything close to 3.7%. I think we're going to end up down at 1.5% like last year. Here's the question for you.
You can see cycles here. The green boxes. We'll start with the blue. The blue columns are the lower-rated issuance years. The red boxes are the defaulted debt years. When you look at the green box up above, that's when there was a big increase in issuances. That almost always leads to increase in defaults. You can imagine in our revenues, those are very good years for us. Likewise, from 2003 to 2007, you know about those years, very big issuance, and as you know, a very big default space. What is sort of not on this chart but fascinating is 2009 was both a record for defaults and a record at that time for high-yield issuances, which shouldn't happen, as you know. As you know, the first half of the year, all restructuring, second half of the year, a lot of high yield.
Now we look from 2010, 2011, 2012, and what started in 2013, and the question is what happens next? Our history would show you that high-yield offerings that are in the B, BB range will typically default sometime in the first three to five years. Almost half of all CCCs default, and obviously below default in the first five years. We'll see if the market follows that. A lot of the deals being done today are refinancing deals already in existence, you might see a little bit of a change in those percentages. We are frankly looking forward to a stronger market for us. We're expecting a strong market in 2013 for us generally, but in terms of wind from the rest of the market, we think probably 2014, 2015 should be pretty good. What does all this mean for Blackstone Advisory and Restructuring in 2013?
We have three possible scenarios. First one, status quo, which is what we just went through. We both figured out how to make money in that space. If the economy gets stronger, you would expect to see a much stronger M&A business. If the economy gets weaker, you'd expect to see a much stronger restructuring business. Either way, we're well-positioned. As we said, this is how the firm was originally set up back, frankly, in almost late 1980s, early 1990s, which was to bring another leg of the stool, which would help in downturns. We feel pretty well-positioned. That's all I have. Thank you all very much.
Ladies and gentlemen, if you have questions, kindly raise your hand and wait for a microphone to come to you. If there are no questions, we'll go to our next segment. Thank you very much, Tim. With that, I welcome to the podium Tom Hill, Vice Chairman of Blackstone and President and CEO of BAAM.
Good morning. It's great to be here. I'm going to do a couple of things. First, I'm going to tell you where BAAM is today. That's Blackstone Alternative Asset Management, or as we call it, our hedge fund solutions business. I'm also going to give you a sense as to where we've come from. I'm going to tell you where we're going, specifically in the context of where the hedge fund industry is today. Where are we today? BAAM has a leadership position in the industry. We are the largest fiduciary allocator, managing $48 billion. We've experienced significant growth, particularly versus the fate of our competition. We've grown on a compound growth rate 31% since 2001, which is more than double our competition. If you look at since 2007, we've grown assets at a 20% compound growth rate. Our competition has lost 5% annually.
We have a very diversified platform. Our growth has been driven by innovation. For example, we have the largest seeding platform, where just in our first seed fund, which was $1.1 billion, our underlying hedge fund managers now are managing $10 billion. We have invested over $5 billion in special situations and long-biased opportunities where we use hedge funds as building blocks. We've achieved very attractive long-term risk-adjusted returns in all of our products. For instance, we've achieved in Partners Offshore, which is a commingled strategy, 8% annualized return net of all fees with a Sharpe ratio of 1.2 since 1996, which is in contrast to 4.8% annualized returns and a Sharpe ratio of 0.48 for the HFRI Fund of Funds Conservative Index. We've also achieved attractive economics and have contributed significantly to the firm where over a five-year period, we've grown our revenues at 18%.
Innovation is the key to our growth. If we had stayed locked into the "traditional fund of funds". By the way, we don't use the F word in BAAM, we would have seen zero growth in our business. What have we done? We focused on customization and creating specific portfolios to meet the needs of the largest institutional investors. They have been a significant driver of growth for our business. We've also come up with what we call specialized solutions, which is direct trading, seeding, long-only. That has also added over the last two to three years, significant growth. What's the future? We will be increasingly putting dollars to work in direct investing ourselves. We are going down the path of creating a virtual multi-strat within BAAM. We're going to be focusing on individual investor solutions. BAAM's growth has significantly outpaced the industry.
A key takeaway from this chart is that the hedge fund industry has grown significantly since 2000. You all recall back in 2000, there was about $460 billion in hedge funds globally. Today, $2.3 trillion, which represents a 13% compound growth rate. BAAM's growth rate has significantly exceeded the hedge fund industry. In fact, we've achieved a compound growth rate in AUM since 2000 of 32%, which is 20 points higher than the industry. Our competition, as represented by traditional hedge funds, has seen stagnation in AUM. If you look at some of them, they've actually lost significant amount of assets. Let's drill down on the competition. I don't want to be overly aggressive. We didn't put the names in. Why are so many of our competitors down significantly in assets or some of them just treading water?
First, after the crisis of 2008, all of our competition either gated or suspended redemptions. We did not. Second, they did not protect capital in the crisis, and significantly post-crisis, they have not achieved the same kinds of returns that we have, where we're top quartile. Third, and most important, they have not, for whatever reason, been able to attract the talent to innovate. I think you're all aware that BAAM's focus from day one since 2000, when I became CEO of this business, has been an institutional focus. Roughly half of our funds are from pension funds. What I am most proud of in terms of our position in the marketplace is that over the past four years, 60% of the money that we have raised has come from existing investors giving us more money.
When we want to come up with a seed platform, who do we go with? We go to existing investors and say, "We have a relationship. You trust us. Here's what we want to do." They come along and provide the capital. Same thing in our Special Opportunities Fund, which is $1.7 billion that we're now investing directly in securities. They have been the seeders of that. I think you're all aware because you read our financial statements that BAAM is a high-growth business. From 2000 to today, our growth in AUM has gone from $29 billion to $48 billion, which is a 17% compound annual growth rate. Our revenues and economic income have kept pace with our AUM growth. BAAM has made a significant contribution to the BX bottom line.
Our pre-tax distributable earnings have been running consistently in the low 20% of total Blackstone for the last four years. BAAM is a diversified platform where we use hedge funds to create solutions for our large institutional and individual investors. We pioneered the concept of customized accounts. We pioneered the use of hedge funds to create building blocks for long-only strategies, whether in commodities or long-only equities. We have set a new standard in terms of a platform for seeding, seed deals. You know our second seed fund was $2.4 billion, and we now are the presence in that space. You've probably read that we're in the process of raising a drawdown fund to actually invest in minority investments in existing hedge funds. You may not be aware, but there are a whole bunch of minority investments already out there. Just take a look.
Avenue, Brevan Howard, D. E. Shaw, coming from Lehman Brothers. There are a whole bunch of minority investments already there, but there are a whole bunch of hedge funds today that want to look at a sale of a minority interest as a way to solidify their business, as a way to provide continuity and also a value and a generational change. We are ideally positioned to be the leader in that business. As I mentioned before, we are pursuing what I characterize as the individual investor solutions marketplace, where we are going to use hedge funds to give individuals the same attractive risk-adjusted returns that we've been giving to our institutional investors. Let's spend a second on what's going on in the hedge fund industry. The hedge fund industry is still growing significantly. As I mentioned back in 2000, there was about $460 billion, now $2.3 trillion.
A 13% compound growth rate. We expect growth to accelerate in the next several years in what is going to be, in our view, a low-interest rate environment for a significant period of time. In 2012, there was only $34 billion of net inflows into the industry. We believe that that low number was an aberration. In 2013, we're expecting $125 billion of net inflows into the space. I think you all know that back in the '80s and early '90s, hedge fund investing was dominated by high-net-worth individuals, rich people. Okay? In 1990, take a guess as to what the total assets were in the entire space. Again, 2000, it was $460 billion. Believe it or not, in 1990, there was only $40 billion in the hedge fund space. You know who was there? It was Bruce Kovner. It was Julian Robertson.
He hadn't even gone macro yet. George Soros. Paul Singer. A handful of people, most of whom had been doing for a significant period of time or had migrated out of the long-only space. If you look at in 2000, the split between individual investors and institutional, it was roughly 50/50. Today, institutions dominate the market. 80% of the total assets in hedge funds come from institutions. We believe that institutions will continue to put money to work in the space for a whole host of reasons. We also think that individuals will return to the marketplace, but in a different format, in a liquid, regulated investment vehicle under the '40 Act. Hedge funds are becoming a larger part of institutional portfolios. In this chart, you see back in 2009, it was about a 4.2% allocation. 2011, just under 7%.
We're anticipating over the next several years that that will grow to 10%. Why? I mentioned before, we're in a zero-interest rate environment. Based on Fed announcements earlier this week, looks like we're going to be in this space for a period of time. Bond spreads are at all-time tights. Yields are low. Every institutional investor that we talk to still has the scars from 2008. They have a dramatic fear of large drawdowns, high volatility, and capital impairment, particularly in the pension fund space. Our institutional investors are focused on risk-adjusted returns. I think you know that the industry has grown by virtue of talent migration. Just take Jeff Vinik. Back in the '90s, we were an original investor with Jeff when he left Fidelity, when he left Magellan Fund. Jeff had run $40 billion of long only.
He said, "I think Operating in the hedge fund space would give me more flexibility to actually do what I do best, which is both long and short, which is turn on a dime, to have gross of 200%, to have 100% cash if I want it." Jeff, as I said, we were one of his original investors, did it successfully through the meltdown of tech, gave money back, and now has reentered and is managing money. He is an example of talent from the long-only space, but also talent from the prop trading desks of the big banks and the investment banks. We think that that trend will continue. Dodd-Frank has also played a significant role. If you look at where the banks and investment banks were in terms of capital allocated to prop trading in 2007, estimates are as high as $800 billion.
If you look at where that is today, estimates are well below $100 billion. If you apply a leverage factor, effectively you have a whole bunch of buying power that used to be there in the banks and investment banks globally now being ceded to hedge funds and opportunistic investors. We think the talent will chase the opportunity. Our view at BAAM is that there's a lot of room to grow within the hedge fund space. If you look at the total capitalization now of all equities and bonds globally, it's about $215 trillion. That's not including commodities and foreign exchange. Right now, there's only $2.3 trillion in the hedge fund space. We don't view hedge funds as a distinct asset class. Hedge funds are simply an extension of long only, providing talent with greater flexibility to manage that portfolio. Long, short, deal with gross net.
If the goal of institutional investors, and also increasingly the individual marketplace, is to achieve attractive risk-adjusted returns, and if you look at over a 10-year period, the HFRI Composite has a Sharpe ratio of 1.7. Hedge funds will, I think, have a home and a place in both an institutional and an individual portfolio. We like to say in BAAM, risk-adjusted returns matter. As I mentioned, if you look at our partners' offshore fund, we've achieved 8% compound returns from July 1996 to March of 2013, with vol of 4% and a 0.15 beta to the S&P. Performance also matters. Virtually every one of our large institutional relationships either has a direct program where they have money directly in hedge funds, or they have other allocations to other providers.
At BAAM, we get a report card every month and every quarter, every year from our institutional investors telling us how we're doing. They rank us. If they don't like the performance, they have lots of choices. Unlike private equity, where you have a long lockup period, in the hedge fund space, we can be redeemed. We have this very high bar. Every quarter, every six-month, every year period, we're constantly being graded. As I mentioned to you before, 60% of the money we've raised has come from existing investors giving us more money, which is a vote of confidence that they're happy. We need to be in the top quartile in everything we do. We have done that in our commingled strategies. In our custom strategies, we've achieved even greater differentials vis-à-vis the competition.
This is a complicated chart. Let me try to make it simple. Our BAAM model has entered its third growth phase. What was phase 1? This was back in the 2001, 2002 timeframe. We were the first to create customized solutions to complement our commingled strategies. We made a big investment in human capital. We opened our London office. What was phase 2? The 2005, 2006 timeframe. We expanded our investment team, the skill set of all of our people to underwrite one-off risks. I think you are all aware we had a very significant short position in subprime, single names, not the indices. We did that based on research. We allocated it to our portfolios. The only way that we could have done that was by having people who understood the mortgage market. We had recruited those individuals several years earlier.
We did use one of our hedge fund relationships where we had done the research. They already had significant short position. We used this hedge fund to actually build it for us and allocated the money to this other manager. We didn't get charged a typical 2 and 20 for that because we said, "You've already got this position on your books. You've already done the work around the names, so we're going to pay you zero management fee, and then we'll give you an incentive fee to the extent you achieve a rate of return superior to what our expectation is." We were able to negotiate a very good deal. I think you're all aware it was over a $2 billion short position in subprime. We also focused on building specialty products.
I mentioned our Strategic Alliance Fund, our seed platform, and our Resources Select, which is our long-only commodities, where we use hedge funds to disintermediate the indices. We opened our Hong Kong office. Now we're in phase 3. What is that? First, it's direct investments in underlying securities, which we're doing through our BSOF platform, which is very similar to Tactical Opportunities, but our duration is shorter than TacOps. Second, we're focusing on individual investor solutions. We are raising a fund to buy minority stakes in existing hedge funds that are well-established. We're targeting assets under management within those hedge funds at the $5 billion-$10 billion, and we're focusing our efforts on increased globalization. The Blackstone footprint around the world helps us to figure out what we're doing, not only in Brazil, because we have our Pátria relationship, but also Asia-Pacific and in Europe.
Let's spend a minute talking about the opportunity in the individual investor solutions category. As I mentioned to you before, in the '80s and '90s, rich people invested in hedge funds. If we're able to get this right, individual investors with assets that are significantly less than historically invested are going to be able to get access. If you look at the size of the market is $19.5 trillion in U.S. retirement assets. The defined contribution market is $5 trillion. If you look at the significant inflows into defined contribution and you normalize it's about $100 billion a year. That is an opportunity for us. How do you adapt hedge funds to make them available to individuals on a mass scale? I got to tell you do it with great difficulty and with great care.
We have a 40 Act mutual fund that is going to be launching on June 1st of this year, we think we've cracked the code. As everything in life, this is a new strategy. What we have to do is constantly evaluate whether we have it right. We're asking our underlying hedge funds to do things differently, things that they'd never done before to get it right. A year from now, I will be reporting to you on how we're doing, because as you know, we get report cards every month in terms of how we're doing. Let me see if I can get this. There we go. How do we think about direct investing? I mentioned to you that BSOF, the special opportunities fund that we have within BAAM, where we're managing $1.7 billion, is a model for the future.
Since inception, we've achieved 12.4% net annualized returns with vol of 3%. We have a Sharpe ratio of 3.9. I have to say that I don't think that Sharpe ratio over the next several years will be quite that high. What we do have is any number of our largest institutional investors saying, "I want some of that." Let me give you an example of what we have in this portfolio. Throughout the third and fourth quarter of 2011, we did independently a lot of work on Lehman claims. We also had several of our hedge fund managers that had big positions in Lehman claims. As you know, Lehman claims, largest bankruptcy ever, highly complicated. Jurisdictions, where do you rank? What jurisdiction? Very complicated.
We asked three of our hedge fund managers to come in and give us presentations on their positions, how they saw the opportunity set. We told them, full disclosure, that we were thinking about putting this position on, and we were looking to partner with one of our hedge fund managers. Full disclosure, it was a beauty contest. We were the buyers. We chose one of the managers. We invested $600 million in a separate account that we managed, but that this underlying hedge fund created for us. We achieved a 43% return net of all fees. Our advantage was with this hedge fund because they already had that position on their books.
We said, "We're not paying you your normal fees." Again, "We're going to pay you 0% management fee and a 10% to the extent you make us money." That's the model of the future. How do we take advantage of our position as the largest investor in hedge funds in the world? A good example is our strategic alliance fund. Our revenue from just the first fund, which is the $1.1 billion, has been $160 million of revenues, where we have, with the underlying hedge funds that we seeded, $10 billion of aggregate assets. What we plan to do is monetize those interests that we have because it's a typical 20% revenue share. They have an opportunity after a period of time, usually three and a half years, to buy us out.
We're going to be achieving monetizations from these hedge funds that we help set up, significant monetizations are in the pipeline. We're also going to be working with our large institutional investors to figure out with them what it is they want in terms of solutions. What else is new? I mentioned that we're going to raise a drawdown fund to buy minority interests, and I mentioned we're going to pursue the opportunity set in individual investor solutions with the mutual fund. Let me close with leaving you with a simple thought. Our business model at BAAM is predicated on our ability to make deals. First, to figure out with our institutional investors, and now the individual investors, what it is they want.
To make deals with our underlying hedge fund managers to create a product and a solution. Size matters in this space. At $48 billion, we have the ability to negotiate with these underlying hedge fund managers deals that work for us, but also work for them. We view this as a partnership. Across our platform, we have achieved over 50 basis points of savings by virtue of reducing the fees that our underlying hedge funds charge us, which we obviously pass along to our institutional and individual investors. That is a big deal. Imagine the conversation that we have with our institutional investor, where we go in saying, "Hey, we saved you 50 basis points. We're charging you in excess of 100 basis points, but guess what?
The net cost to you is much less." It's a very different conversation than those of our competition who are operating at a lower level. It gives us significant opportunity to resist fee compression. We do not cut our fees in BAAM. What we do is work to create better returns and work to create better opportunities from our underlying hedge funds. The key differentiators in BAAM are innovation, and that's a function of the people that we've hired over the last three years. We've hired significant trigger pullers and risk managers from the hedge fund space and from prop trading firms. Second, our direct investing model, where we now have $2.2 billion of direct investments that we have made. Hedge fund ownership, whether it's through seeding or through the minority interest fund that we're going to create to buy the minority interests. Lastly, our people.
With that, do we have time for one or two questions, David?
Hi. Thanks a lot. Bill Katz, Citigroup. Two-part question. You mentioned you expect the allocation to go up to 10%. Curious where it's going to come from, what are the bucket, if you will. The second one is, as you look to tap into the mutual fund business, can you talk about what you did to crack the code, if you will, and how do you balance the tension between return versus volume in terms of assets coming in and maintaining an attractive return?
Okay. A two-part question. I think you have to really segment the market and look at, for instance, ERISA accounts. Those that were underfunded back in 2008 and now have clawed back to where they're virtually fully funded. What are their goals in terms of risk-adjusted returns? Any number of our ERISA accounts would be very happy to have 8% return net of all fees and essentially vol in the 4% range. Now, sovereign wealth funds, central banks. I think you almost have to look at each category, and then say, what are they trying to accomplish over the three-year, five-year period? Some of the money is coming from fixed income. Some of the money is coming from long-only equities. Some of the money is coming from investing in inefficient, like used to be GSCI Commodities Index.
When you have a contango market and negative roll yield, you lose 20% just every month on the roll. To the extent that we can eliminate that problem. We've gotten over $3 billion just in our long-only commodities fund that's come from money out of the indices. Your second question was where we're going from here or the-
In the mutual funds, in terms of, you said Just going back to mutual funds, you mentioned that the RIC product is going to be an area of focus. Can you just talk a little bit about the challenges and opportunities of managing a hedge fund with daily liquidity?
Oh, my goodness. Well, I think you know we have a RIC strategy that we're now making available through platforms such as Morgan Stanley and Merrill Lynch. The mutual fund, the daily liquidity, the '40 Act strategy, requires complete re-engineering of the entire process. As I mentioned, you've got to get hedge funds to feel comfortable doing something they've never done before. It's been over two years in the gestation period, and we've identified the best and the brightest who can actually meet our criteria. We've been able to extract exclusivity. Again, our ability, given our size, to go into a manager that we already have a relationship with and say, "Here is an opportunity for you to generate incremental revenues, but doing it differently." How we create that partnership, is the art form.
Thank you very much, Tom. Appreciate it.
Okay. Thanks, David.
Good morning. I have the distinct pleasure of talking about something quite near and dear to my heart, the GSO Credit Cluster. I'm going to try to walk you through a bunch of slides to give you a better sense of what we do in the world of alternative credit, what makes us different, and how we've been able to translate that into some pretty compelling risk-adjusted returns for our investors. This slide gives you a sense of the organization structure of GSO. We've had some exceptional growth over the last several years. As of the end of the first quarter and adjusted for a recent fund close, post March 31, we're now at $59 billion of assets under management. We think of our business as two different clusters of funds.
We have our alternative investment funds, where we earn fees and carry, typically a 1.5% management fee and a 20% carry. Then we have what we call our customized credits strategies group, which is effectively a long-only investment management business, where we only earn management fees, and those fees are typically 40 to 50 basis points. A lot of boxes, the common denominator across all these different strategies is that we only invest in corporate credit. We don't invest in real estate. We don't invest in investment-grade debt. We don't do sovereign debt. We're not invested in the emerging market arena. Just corporate debt. The second common denominator is that we are a top quartile or better performer in everything that we do. Another way of thinking about our business model is that we have a series of private market strategies and public market strategies.
This gives us quite a bit of breadth and reach into the marketplace. We just see a lot. This is the way we tend to think about our cluster of funds. To give you a little background, mezzanine investing is essentially providing subordinated debt to private equity firms who are trying to close a deal. I think you understand they capitalize their deals with some senior secured debt, their own equity from their funds. Mezzanine is that kind of middle tranche, which is usually unsecured. We are one of the biggest mezzanine providers in the world.
Our rescue lending fund provides liquidity to those companies that are going through some kind of balance sheet problem or have some other financial issue, whereby we go in and inject a large capital infusion, solve their problem, and allow those companies to move along and to achieve their business objectives. Our third private debt strategy business is what we call our small-cap lending vehicle. We operate that business through a BDC, a business development company. We've created this entity in partnership with a group called Franklin Square, where we are the sub-adviser to what today is about $7 billion of assets. We invest primarily in smaller companies providing senior secured debt. On the public side of our franchise, we operate a fairly large event-driven hedge fund. It goes long, it goes short. It's making idiosyncratic investments in companies going through some kind of change.
There could be financial problems, it could be regulatory issues, it could be some kind of litigation problem facing the company. What we're trying to do is identify the event and a catalyst that will unlock value. The key to that strategy is we like to be the catalyst, and it's a very activist-oriented type approach. Our most recent investment that I think was pretty newsworthy was the restructuring of Kodak, where our team played a pretty important role there. The other public market businesses are all that long-only stuff. That's where we house those CLOs, our closed-end funds. SMAs are separately managed accounts, where we operate a few billion dollars for some of our most important and largest institutional investors. While we operate several distinctly different funds, we do have a fairly consistent investment approach across all of our alternative vehicles.
This slide summarizes how we try to use our competitive advantages to solve a company's financial problem and thereby creating alpha. The key to driving this process is originating our own deals. We have about 50 investment professionals who all they do is go out and call on companies, call on private equity firms that have big portfolios of companies, and try to figure out how to infuse some form of capital to solve a problem. This is a very talented team that has true expertise and has really distinguished itself in sourcing, diligencing, structuring, monitoring, and exiting these types of proprietary investments. If we truly have competitive advantage where we can do transactions where other people can't, our return should indicate some serious outperformance relative to our benchmarks.
As you can see on the right-hand side of this slide, we have indeed been able to generate some meaningful excess return compared to the relevant index. Across all these businesses, you're seeing something between 50%-100% outperformance. That is the best testimony that I can give to you with regard to our competitive advantage. Investing is a fairly competitive environment. Lots of people try to do what we do. We're able to post these kinds of returns because we do things that other people can't do, and it really relates to those competitive advantages that I highlighted in that little video. Scale, brand, origination, and investment expertise. Interestingly, the key to managing any credit portfolio is not trying to get higher coupons or more warrants. The key is trying to limit the number of mistakes that you make.
When you do err, try to get a good recovery. That's something that we take pretty seriously at our firm. Within GSO, we like to say the art of credit analysis is getting your money back. It's easy giving your money out, but the key to success is making sure that you get it back under any set of circumstances. You can see here in all of our direct lending activities, we've originated over 140 deals aggregating approximately $11 billion of capital, and we've had a realized loss of principal of less than 100 basis points. Keep in mind, we are investing in the junk-rated universe of companies. These are all single B, triple C type companies. That loss of principal, I think, is one of the most important aspects of why we have been successful.
There are many other factors that kind of contribute to our performance. I'd like to hone in on two. I don't have time to do them all. What I really want to give you a better appreciation for is how we try to capitalize on the power of our brand, that Blackstone brand. How at GSO, we try to develop high-conviction investment themes that allow us to invest large sums of capital. It would be really hard for me to overemphasize the importance of being part of Blackstone. Lots of the companies that we encounter have some kind of a problem, and the board of directors is looking for some kind of endorsement. It's not just capital that they want, although cost of capital is important.
What they want is a smart investor who extends their good housekeeping seal of approval that is really a way of validating their strategy, their management team. We frequently win deals, not because we are the lowest cost of capital, but we're a pretty good partner for companies and boards of directors to achieve their longer-term strategic objectives. This slide, I kind of highlight. I don't know if you can read it. Maybe you can see it in your book. Some quotes from CEOs of companies that we've done transactions for. These are big, powerful companies. We couldn't put these words in their mouths. You can get a sense of how they feel about having GSO Blackstone as their partner. We also spend a lot of time trying to figure out how can we find the next new thing.
One of the advantages of operating at Blackstone is that we have a very unique vantage point to get lots of tentacles all over the world, collecting data and information to develop a theme. On this slide, I try to highlight all the different ways that we interact with Blackstone, which allows us to build conviction, test our thesis, have a healthy debate, an exchange of ideas. When we find a theme, we really try to put a lot of capital to work. The art of all this really is, if you can find an industry in transition and get in early, not too early. Sometimes getting in too early can kill you. But at the appropriate time, you can really establish some attractive entry valuations where your cost basis tends to be well below intrinsic value, which will lead to some pretty compelling investment results.
Just to put a few numbers around all this. This slide highlights some of the major themes that we've developed through the years in collaborating and interacting with our other colleagues at Blackstone. In 2010, we were pretty early to this whole shale revolution. We have an energy team that's part of GSO, headed up by my partner, Dwight Scott, who was the former CFO of the El Paso Corporation, who heads up a team of about 10, 11 professionals. All they do is invest in the energy space. They were early on with this notion of fracking and the vast potential of those shale plays throughout the continental United States. In part, our confidence level was bolstered by interacting with BCP.
David Foley and his team, he's looking at a lot of these same plays, and very helpful for us to be able to test our thesis, talk about specific fields. We like the Eagle Ford, we don't like the Barnett. We're really bullish on the Bakken. But Haynesville is depleting faster than we thought. We have lots of ways at GSO to deploy our capital because of the diversity of those funds. So we can put some of that capital into our CLOs. We can put some of that capital into our hedge funds. This slide just highlights the direct originated deals that we've been able to do, aggregating about $1.5 billion. More importantly, you can see some of the returns. Energy is probably the largest single source of attribution to our performance across all of the GSO products.
Very powerful to be able to do that. In 2011, we sat down with our brethren at BREP. Talked a little bit about residential housing. Our team at GSO felt pretty confident about the improving fundamentals of the home building sector. BREP, as I think John mentioned earlier this morning, was also making a pretty big bet. Very helpful to have access to John and his team to, again, validate our own investment premise, make sure that we haven't missed anything. But we proceeded to lend $650 million across four different transactions. We actually have two more deals in backlog that we're hopeful that will get done. We see meaningful upside in this portion of our portfolio because we think housing is still in the early innings of its recovery. Europe became a big focus towards the end of 2011.
Tripp Smith, my co-founder, relocated to London the beginning of 2012, and we got particularly active with our capital solutions fund. Today, approximately 50% of our backlog comes from Europe. Our business is pretty straightforward. If you do a good job for your investors, they reward you with more capital. As you can see, we've been able to have substantial growth since we started our business franchise. As credit guys, we're nervous. The glass is always half empty. We worry. How do we build a stronger business? How do we diversify? On the right-hand side of this slide, I think we have some pretty interesting metrics about how we have de-risked the GSO business by introducing diversity. When you have happy LPs, as Tom Hill mentioned in his BAAM presentation, they follow you into other products. We have been a huge beneficiary of that.
There are a lot of numbers on the page, the one I like the most is that column that says % of capital locked up. Back in 2005, only 41% of our capital was locked up or permanent. Today, north of 80%. That will make any credit geek happy at night, knowing that the money can't get withdrawn too quickly. You can see that we too have innovated, have come up with new ideas, new concepts. We've manufactured lots of products to deliver the kind of risk-adjusted returns that these institutional investors, all of whom have different appetites for risk, for liquidity, and we've been quite clever in coming up with new things to help propel that growth. That AUM growth has driven a steady improvement of financial performance.
I find it interesting that Blackstone and all these other alternative investment companies that are public, there's so many different financial metrics that people follow. Again, I'm a credit guy, the line I hone in on is distributable earnings, which I took the benefit of highlighting in yellow just so it would make it easier for you to emphasize that one as well. In 2009, we were an odd lot. $4 million of distributable income. Because of that growth and that investment performance, on an LTM basis as of the first quarter of 2013, just a shy under $300 million of distributable income. You can see that our ENI and our NFRE has risen pretty significantly as well. Our business model at GSO, like all credit franchises, is based on management fees on invested capital. We don't get paid fees on the commitment.
We get paid on investing the capital. Not as attractive as BREP or BCP. I think there's an inflection point in and around $25 billion-$30 billion, where you have to invest that capital. You can see, based on our financials, once we got to that $25 billion-$30 billion, numbers started to scale up pretty rapidly. GSO, within the context of a Blackstone business, is still relatively new. It just took us some time to get that asset under management up, and it took time to deploy that capital. Now we're beyond that inflection point, all the incremental deals that we do fall directly to our bottom line, which is why we've been able to expand our margins pretty consistently throughout that period, which you can see here as well. We do have some specific priorities for 2013.
As I mentioned previously, we're quite busy in Europe. The European marketplace is more dislocated than the United States. John highlighted in his presentation how the European banks are far more levered than their U.S. counterparts, with two to three times more leverage. If you're a single B-rated company in Spain, really hard going to those Spanish banks and getting a new capital commitment. As a consequence, we just see more opportunity there, both on the distressed side, but also for just plain healthy companies. Companies that are doing fine. It's just really hard for them with this Basel III regulatory environment or the Solvency II laws that govern insurance companies to get capital. We're trying to figure out the best way for us to invest our funds to help those companies grow and prosper. We do have about $8 billion of dry powder.
Best thing for us would be to have some kind of dislocation in the market. We're quite confident of everything that we own, and we own them on a basis where they have lots of cushion. Not everything has to go right. If we did have a market disruption for whatever reason, we could put a lot of money to work, and nothing would make us happier. We continue to launch more and more permanent capital vehicles. Again, I think that gets to our paranoia. Permanent's a long time. We like that. We did launch a ETF recently, in partnership with State Street. I think you guys are all familiar with the growth of that ETF industry. We're the first actively managed leverage loan ETF. We're quite optimistic about what that can scale to.
In the high yield area, where there are ETFs on high yield bonds, some of those entities are $10 billion-$15 billion in size. This is a leverage loan ETF. It's the first of its kind. We're optimistic that we'll be several billions of dollars in the ensuing years. We will continue to launch more closed-end funds. We have three in the marketplace today. They've performed quite well. We're continuing to build that franchise, which has been aided by Brendan Boyle's group within Blackstone. He oversees a group that's targeting this retail system and has certainly helped us in raising these kind of closed-end funds. Our most recent closed-end fund, for example, was approximately $1 billion, which was an enormous fundraise. We had that capital on a somewhat permanent basis. Pretty good business if you can do it.
We also will continue to roll out more products in partnership with Franklin Square and our BDC. We do have a new product registered that we're hoping to roll out sometime in the June timeframe. My other co-founder, Doug Ostrover, is quite actively involved with that initiative. That, too, will have some pretty good prospects. Another thing that's aided our growth is that LPs are looking to consolidate their relationships. We are a really logical partner if someone wants to form a strategic partnership, and we probably have about a half a dozen conversations going on with some really large LPs around the world where we have much broader mandates, multibillion-dollar programs. The partnerships that we put in place over the last two years have performed very well, and the other LPs have seen what we've been able to do.
We're optimistic we'll have a few more to announce during the course of this year. To our utter joy, the CLO market is back with a vengeance. I just wanted to give you a little more detail on what's happening there. CLOs, Collateralized Loan Obligations, allow managers like us to raise capital. The peak of that market was in 2006, 2007, where there was approximately $90 billion-$100 billion of these entities formed just in the U.S., another $50 billion or so in Europe. That market came to a crashing halt during the great financial crisis. There was virtually no issuance in 2009, and really an anemic amount in 2010. Came back a little bit in 2011.
During that three-year hiatus, we went out and acquired three different CLO operators for about $13 billion-$14 billion of AUM, the most significant of which was a European CLO manager called Harbourmaster. They represented about $10 billion of that. We bought it at a time when everybody thought this industry was dead. Now it's come roaring back. The efficacy of these CLOs stood the test of time. Unlike subprime or student loans or other asset-backed type CLOs, CDOs of CDOs, the CLO industry actually performed. The waterfalls that are built in, the protections that are built into the various creditors kicked in. Distributions to the equity holders were suspended for a while. These things de-levered. As the loan prices recovered everything worked. There is widespread global interest in this CLO industry.
Our expectation is that there'll be $75 billion of CLOs raised in the U.S. this year and about $4 billion in Europe. Luckily for us, we happen to be a leader in this industry with the top track record in managing these kinds of entities. We're very confident that we will have a record-breaking new issuance of CLOs this year, 2013, with approximately $3.3 billion, which would be an all-time high for the GSO Blackstone complex. Our biggest problem here isn't having access to investors. It's just finding the collateral. One of the inherent advantages of being the largest CLO manager in the world is we control a lot of collateral. As deals mature, we can roll a substantial portion of the loans that are in those entities into a brand new CLO. That's part of the competitive advantage that we have in this arena.
Our longer-term goals, it's all about performance. We need to continue to drive our investment returns. We will grow, I think, opportunistically as we see dislocations in the marketplace. We are putting the finishing touches on our rescue lending vehicle. This is our second fund. We have about $4 billion of capital that we've closed on now in that entity. We have a $5 billion cap. In the world of Blackstone, a business leader like myself who doesn't hit a cap doesn't last really long. I feel pretty confident we'll hit that cap, which we should do sometime in June. I think the success of all of the businesses at Blackstone has a lot to do with culture, and it's really important to sustain that. We have a real open architecture that provides a real meritocracy to everyone.
We really don't care how young someone is or what school they went to. We give them an opportunity to show us what they got. We've been able to reward them with more responsibility. It's so important to keep that and to sustain that. I do think as we look forward, even with $59 billion of assets, we can maintain a double-digit growth rate. One of the things that creates a kind of a tailwind to propel our business is that credit is getting more institutionalized. When I say credit, I'm referring to the junk-rated universe of corporate credit. I think historically the world was always a little suspect, but now it's much more widely accepted. We're having first-time institutions coming into our marketplace that have never had any exposure to the portfolio of strategies that we have to offer.
In a yield-starved world our products fit pretty well. I think we'll have more and more momentum there, and we'll continue to think of other ways of leveraging that brand. It's really helpful to us in terms of coming up with new ideas and being able to innovate, and we will continue to do that. We feel pretty good about the outlook. With that, I've covered all the topics that I wanted to do in the short time I have left. I'd be happy to open it up to any questions.
Hi, Bennett. Howard Chen from Credit Suisse. Two questions on fundraising. First, I know you have a lot of dry powder, and you can recycle within the business, but just given this debate about the pending equity rotation, curious, one, how that's shaping LP conversations at all. Second, just curious, as you go and speak to your limited partners, how much do you feel you're competing against other alternative credit managers, versus more traditional fixed income players, which is obviously a bigger part of the allocation fund?
Two good questions. This great equity rotation, I think, has more to do with public market strategies than it does the alternative strategies. In the public markets, I think if you took a poll of all the CIOs of the biggest pension plans, if they get a 6% return in public equities, I think they'd be happy. That's a lot better than the 2%-3% they're going to get in fixed income. Most of these institutions are at their all-time high allocations to investment-grade corporate debt. Where can they go? They have to go into that equity market. It doesn't have that direct an implication to us in the alternative space. Now, we do have competition for our assets in the other alternative spaces.
The big pension plans will take our risk-adjusted returns and try to juxtapose that against what they can get in private equity and real estate. The good news is, if we don't get it in credit, we get it in BCP or real estate, we're going to get it one way or another. The risk-adjusted returns of credit are quite compelling. Most of our strategies, you can get a double-digit coupon. That's powerful in today's world. We get upside where we get warrants and other equity-type features in our structures. We may not create the multiple of invested capital of private equity. We clearly won't. We do get you something that is north of your actuarial liabilities, which tend to be about 8%, and some upside when we monetize these investments. Honestly, raising the capital has not been that hard a challenge.
It's never easy. I do think the acceptance of these products is what's allowed us to really ramp up that AUM, and we think it will continue. With regard to competition, we see competition in each of our businesses. A lot of good competitors. Never ceases to amaze me how some of our competitors like once the day our 10-Q comes out, they're pouring right through it, and then they frequently try to follow what we're doing. It puts pressure on us to continue to innovate. We're used to that, so that's okay. There's no one firm that I think we get compared to that often. There are folks like Oaktree, a very, very good competitor. Folks like Apollo, has a big credit operation. Once you get past those two guys, the size, scale, breadth, diversity, geographic orientation tends to get a lot more narrow.
Everyone is watching what we're doing given the growth that we've had. We've got to stay on our toes and keep hustling.
Thank you very much, Bennett. I appreciate your time.
Well, thank you, everyone. Thank you for your great attention. I'm really impressed that you hung in there for all those presentations and were as generous with the time as you were, and frankly, not very restive. I know it's been a long day. I'm going to give a brief summary, and then Steve and I are going to sit here and try not to embarrass ourselves when we answer your questions. Just to summarize, Blackstone is the world's leading alternatives firm. We're the only alternatives firm with leadership positions in more than one business, and we have it in 4 businesses. Every one of our businesses is a great business. We don't want a lot of average businesses, and we don't want a lot of small businesses. We've gotten out of more businesses in the last five years than we've entered.
We want every one of our businesses to be best in class in terms of investment performance to its LPs, and we want every one of our businesses to be leading scale in its industry because that's where the competitive advantages come from, and it also gives us investment return advantages for our limited partners. Scale matters. I hope you got a sense today for the quality of our franchises and the quality of our guys running the businesses. Private equity, I think Joe talked about that. We have $21 billion of assets under management today. That's $30 billion when pro forma for adding strategic partners to that business segment. I expect in the next couple of years we'll have $35 billion in that sector, at least. Meanwhile, other private equity firms are struggling to hold their assets under management flat.
Returns have compounded at 9 percentage points per year higher compounding than the S&P. What do our clients want? Our clients want 3% higher than the S&P. We're way above the benchmark levels for our clients. We've had double-digit growth in this business right along, despite the financial crisis. Real estate, fantastic business. You heard John talk about that. We're about 4 times the number 2 guy in the industry. It's very unusual in financial services to have any player that dominant. Think of that, 4 times the number 2. Again, scale matters. Some great advantages that John has in that business, particularly in a business like real estate, where the assets don't trade every day. They don't file financial statements with the SEC, and so on. Information advantages, access advantages, it's massive in that business.
It's a business where the targets of opportunity are larger than all stocks and bonds combined. John's returns have been spectacular. He's had private equity type returns with losses less than a AA bond portfolio. What an amazing value proposition to investors, and you can see why it's so popular. AUM's grown to 17% over the last five years, and it's actually accelerating now. We've moved from 2 products, 2 funds a few years ago, to 6 today. Hedge funds. You heard Tom talk about that. Not a simple business, not a fund of funds, and he's 2 times or more bigger than the next guy. Not just bigger, he's truly different. He's constructing solutions. He's picking investments. His guys are trigger pullers. They're not just selectors of other managers.
One of the advantages of scale in this business is no other fund of funds has the scale to invest in the technology and to hire the actual investors that BAAM has. Again, we have a unique opportunity to create a differentiated product. The performance, how great is it to outperform the S&P by 400 basis points per year and have only a third of the volatility? Why would anyone invest in the stock market? If you think about BAAM's potential as being long only equities, that's its pool of capital that it can tap into. It's vast. The potential is vast. That's the exciting thing about BAAM. It's not limited. Don't think of it as hedge funds or alternatives. Think of it as a better equity alternative. They've grown their assets every year, even in the worst of the downturn.
Never a year where it didn't grow, that against the context where the fund of funds industry, which of course we'd say we're not in, but nonetheless that is a relevant basis of comparison. The fund of funds industry is declining. How rare is it when you see an industry leader with that big a share that's growing when the industry it's in is shrinking? Says something about the quality of that business. We just heard from Bennett about the credit business. As you know, it's now our biggest business. When we bought that business five years ago, combined with what we had, $10 billion. He's up to like 60 now. More than five times in five years, Bennett's done a fantastic job, it's a great business. It focuses on, as he said, just corporate credit, just lower rated corporate credit.
We do one thing, we do it really, really well, we have scale advantages also. Because it takes scale to originate product and find illiquid credit investments, so you're not having to chase liquid markets. If you're investing in illiquid credit markets, you have today a historic premium or historic spread between the liquid and the illiquid, we're obviously taking advantage of that. You can see that in his returns on this page. These returns are spectacular. They're equity returns, except they have high current yields, it's debt risk. It doesn't get much better than that, it's consistent. The mezzanine fund that Bennett runs has never had a down quarter. Think about that. How many investors can say that? His default losses are tiny. Another great business. Bennett doesn't have to worry about his job, I assure you.
It is true that his most recent funds have been blowouts and have more than exceeded the cap. Tactical Opportunities. You just saw the video. It's our new business. This was a concept we developed to take advantage of some of the uniqueness of Blackstone in terms of scale, in terms of being across all leadership positions, across all asset classes, and in terms of its truly global footprint. There were no other alternative firms that could offer that combination of factors. We said, "How do we make this scale another advantage to our LPs?" We came up with this concept. It's since gotten a lot of imitators, because it's powerful. I don't think anyone else can do it the way we can do it, but it doesn't mean that they're not saying they can.
This takes the Blackstone scale and makes it an advantage, as I said. It also takes advantage of the regulatory change. After the crisis, there used to be a lot of one-off quasi-liquid or illiquid investments that were jumped on by hedge funds through their side pockets. The problem with that is when investors want to redeem, they were illiquid, so hedge funds are very reluctant to load those up again. Of course, bank prop trading desks, Dodd-Frank, Basel III, all that makes that tough. That's left a vacuum in the market that we can jump on. Big pension funds have a problem. If you're a $100 billion pension fund, how do you become nimble? If you see an opportunity today, or let's just say a year ago, go buy mortgage servicing rights, for example.
If you're a pension fund, how do you take advantage of that? By the time you figure out what managers out there that have the capabilities and the regulatory approval to buy mortgage servicing rights, you interview them, you hire your consultant, they do their work, you go to your board, you make your investment commitment to them, then they go try to invest that money. It's at least a year, probably two years. Well, guess what? There was great buys in mortgage servicing rights, but that window was open 90 days. There's lots of examples of that kind of stuff. If you're a big fund, how do you do that? This is not a market where there's a lot of really simple mega trends you want to play. It's a market of discontinuities, disruptions, dislocations, temporary opportunities that are fantastic, but very short windows.
What this product does is it offers pension funds the opportunity to be nimble across the world, across asset classes. We've had a fantastic reception. I think we're going to hit our cap on this as well. I think that will make it one of the biggest first-time funds ever of any type of asset. The portfolio's off to a great start with sort of teens yield and more than 20% IRRs is what we expect. Of course, we have our other businesses, and I don't want to give them short shrift. All of our children are valued in our firm. Our advisory business, you heard from Tim, it's very steady, actually. Restructuring goes up and down, M&A goes up and down. They have something very nice. They're almost perfectly counter-cyclical.
What that means is, by the way, collectively, they have the highest revenue per banker of any investment banking business on the street. What that means, it's a consistent contributor to our profits and our cash flow and provides a steady anchor. It also is paid for brand marketing. These guys are good. They do a great job. They're in boardrooms all the time, all over the world. The Blackstone name is out there with movers and shakers and decision-makers. We represent countries in doing their sovereign debt. We represent corporations doing mergers, et cetera. It's amazing marketing. It's amazing reach. It's a network of a lot of senior guys, you heard Tim say we're all old guys, a lot of senior guys making strong impressions with CEOs and boards that furthers our other franchise.
That is the strategic secret sauce of being in that business. Don't underestimate it. Park Hill. Park Hill calls on our customers. We have one customer base really in this world. It's limited partners. We have the biggest limited partner base. We have 1,500 of them, of any alternative firm. Park Hill calls on 4,000 limited partners. When they go to a limited partner, it's an objective voice. It's not Blackstone because they represent other managers. When they go in and talk to their LP, "What are you doing? What are you thinking? What do you like? What don't you like? What about this? What about that?" They're getting objective information from the universe. Think of the competitive advantage if you had the best insight into your customers of anyone out there. Now you understand the advantage of Park Hill. Pátria. Pretty much dominant in Brazil.
By far, the largest alternative asset manager in Brazil. When we invested in them, we own 40% of them, as you know, but we treat them like our office. They train their people with us. When we had our offsite yesterday that Steve mentioned, they present just like everyone else. They're in our strategy review sessions. They use our systems. In every way, it's pretty much totally an integrated business. When we invested in them three years ago, they had $2 billion of assets under management. Today, $6 billion of assets under management. Six billion. In addition to that, their performance has been great. They're not just top quartile. They're amongst the top five individual managers in every asset class, real estate, private equity, infrastructure. Amongst the top five individual managers. They've done a great job. It's a great business.
Finally, Blackstone Strategic Partners, that's our new acquisition. We know it'll be a seamless cultural fit because they worked with me before, they worked with Bennett before. They're really good guys. They totally get it. They fit like an old shoe. No organizational risk there. They're a top player in their industry. They've done more deals than any other secondary. Another industry leader. It's a great business. There's no J-curve in that business. They start making distributions right away, it's almost got a current yield aspect of it. They earn 20% or better returns on a gross basis, high teens, 17% net. Very consistently. Why? They're not investing in blind pools. They're buying things that you can already look and see what they are. That narrows the risk a lot. Another good business and good fit.
Today you've heard presentations on a lot of our individual businesses, but the key to understand is the whole here is more than the sum of the parts. Our businesses are not only run by great talents, they're populated by great talents, all of whom could go out on their own. Yet we have not lost a partner we didn't want to lose in over five years, not one. One of the reasons is because these incredibly talented people that could start their own businesses and be successful, they understand that they get more from the Blackstone platform than it costs them. That's really, really an important glue. It's hard to accomplish that.
For those of you who are from big institutions, you know how hard that is to really have everyone feel, your most talented, movable people really feel they get more than they give up. It means we have to keep bureaucracy low and do everything else well, of course, as well. One of the ways that really works is these businesses work together. Every one of our businesses works with all the other ones. Around the chart between each business, I just gave an example of which two businesses, just a recent opportunity working together. This is core to our mission, it's core to the health of our firm, it's core to our culture, and it's what Steve and I spend our time on. Steve and I meet with every group. We make sure every connection's being made.
If we don't make it ourselves, we certainly encourage people in different ways to make sure they make it. I think Bennett or someone referenced the housing, we found that if you get multiple perspectives on a complex issue with multiple different knowledge bases and facts, you see things earlier, and you see them more clearly. Housing's a great example of that. 30 months ago, we had private equity looking at building products, we had real estate thinking about housing, we had Bennett financing home builders' inventories, and we had Hedge Fund Solutions dealing with non-performing mortgage loans. Somehow that all came together, we got a really good three-dimensional view of what it was, and we concluded 30 months ago that the market was mispricing anything related to housing.
The market was basically assuming a 0 house price appreciation over the next 5 years. We got conviction that we could bet on 3%-5%. That may not sound like that much. By the way, it's obviously now way above that. That may not sound like that much, but that meant the difference, for example, between a non-performing loan, buying it at an 8% yield or a 15% yield. It was quite significant. We've developed conviction the market was mispricing housing-related assets, and we put $10 billion to work behind that conviction, in homes that you heard John talk about, in residential-related businesses and private equity, in home builders in credit, and in mortgages, mortgage loans and servicers in TacOps and in Hedge Fund Solutions. It's been spectacularly successful. It's a really good example of what I'm talking about sharing intellectual capital.
I've hit a few times, scale brings advantage. Brand is important in our business. Brand's important in every business, as far as I can tell. It's certainly important in our business, especially outside the U.S. The breadth and depth of LP relationships. Bennett talked about when you make money for an LP one place, they like you, they want to buy another product, they move across products. That's really happening. It's just beginning, and it's got a long way to go. It's every time we do an acquisition of something like a strategic partners, and they bring new LP relationships to us that are happy, and we bring our relationships to them, there's synergy, obviously. Lots of potential still on the cross-selling area. Increasingly, as a couple of guys have hit on, LPs need to concentrate their manager relationships.
They can't manage hundreds of GPs, and so they're concentrating on a few really core GPs in the form of strategic partnerships. This is a big trend in our industry, and we are the single prime beneficiary of that. Speed and information that comes with diversity and size, I've hit on that somewhat, and a broader set of business relationships and government leader relationships. One other thing that's not on the page, by the way, is just sheer economic power. BAAM can get the lowest possible fees from its underlying hedge funds because it's the biggest investor. Jon Gray can buy assets no other real estate bidder out there can bid for. They don't have enough resources. They have to cobble together some big, unwilling group and have 19 conference calls to change the price a little bit.
Jon's bought it and closed it, and it's in his pocket already. Similarly, Bennett can afford an origination capability to originate private credit and not have to depend on liquid markets and so on. I think the best is yet to come, and this is a Goldman Sachs slide, or at least reflects Goldman Sachs research about predicted returns going forward in liquid markets. You can see they predict Treasuries will be 0%. They predict bonds, depending on the risk spectrum, will be 2%-4%, and equity 6%. You're not going to have any mix of liquid securities that gets you much above 3%-5% return, obviously. And yet most pension funds and most institutional investors and even retail investors would look and say, "Gee, I can't live with 3%-5% long-term investments." So the answer is obvious. The answer is alternatives.
If investors are going to deal with this, they have to give up of liquidity, and most way overvalue liquidity, and it's got a huge cost today when you're earning 0% on your cash. They have to increase their duration. They have to take more risk, not necessarily more portfolio risk. In fact, we met with a sovereign wealth fund a lot over the last few years and have got them convinced finally. They were all in government bonds, all in U.S. government bonds, billions. We showed them that if they took 10% of that portfolio and put it in private equity, the risk of their portfolio would go down. They understood the return should go up, but we showed them the risk would go down. That's portfolio construction. Then finally, being able to capitalize on dislocations. These are alternatives. This is what we do.
It's the only place institutional investors are going to be able to put money and earn the returns they have to earn, and they have to do this in size, and it's just beginning. David, can you push the next slide? Thanks. Okay. You've heard today, we emphasize innovation, and we encourage our people to be entrepreneurial and to try new things. TacOps, we took one of the most senior guys out of private equity and said, "Go build this business for us." Our people find they love building businesses. They like deals, but in the long term, your satisfaction comes from building something special that's enduring, and we love that kind of people. It's one of the ways we harness these entrepreneurial energies that our people have. You can see that the light green bar there is our new strategies.
We've got more money from new strategies in the last six years than most of our competitors have AUM. It's a stunning statistic. We have a lot more coming, shown on the right side of the page, which will continue to drive AUM growth. David, this doesn't seem to work. Can you do next slide? Oh, I did. Okay. Sorry. Okay. The biggest area in terms of targets of opportunity of AUM of innovation growth is retail and defined contribution, and several of the business have touched on that today. There's been a lot of talk about that in the press recently, but we've built an entire organization to do this, and we built it three years ago. You can see the results. The results, in 2009, we raised $600 million for our retail AUM. By 2012, we raised $6 billion.
Now, in financial services, there's nothing patentable, and there's nothing that can't be copied. It's not so easy to imitate and do it well. When I was at Credit Suisse, McKinsey came in and said, "The way to win is to be like Goldman Sachs. Just imitate Goldman Sachs." We did that. It killed us. Merrill Lynch did that. It killed them, too. Well, guess what? People have been trying to imitate Blackstone for 20 years. They've talked about it forever, there's still only one Blackstone, and there's still only one firm out there that's good in more than one asset class. I think what that boils down to, the critical elements that distinguish us from other firms is leadership and culture. Leadership and culture. It gives us a heritage of winning that is something you can pass on to your great young people.
This is our leadership team. This is what we call our management committee. I know I'm leaving a bunch of talented people out, but I had to draw the line somewhere. It's a management team I would put up against that of any large bank or securities firm. Forget the alternatives, not even close. Six of the eight people on here have run major chunks of whole major firms, large chunks of whole major firms. Seven of the eight have been in their jobs over five years, yet half of them are under 50. We have a deep bench. We have young guys that are passionate about their business and full of energy. They're excellent leaders, and they're instinctive investors.
The other key foundation for our business is culture, these are the elements that we emphasize because when you cut through it, we think that helps us make better investment decisions. Teamwork, sharing information, working together, being able to challenge each other and never have that challenge be personal. That's robust debate. Passion for the business. People that really care, they want to win, they want to do everything perfectly, they want to go the extra mile. Keeping the small firm feel. Yes, that's open door, it's also a sense of ownership. I own this place. If there's a problem, I'll fix it. I'm going to do the best I possibly can for my partners, my limited partners, my clients. It keeps it personal, and it keeps it nimble. Of course, ego is dangerous. I think people look at Blackstone as a big ego place.
Inside, nothing could be more untrue. Our people are workaday guys. They fly commercial. They take the subway to work. They work hard. They're unassuming. They're nice people, and they care. They care about each other. They care about their work, their clients, and they care about society. What our people do in charitable giving and personal commitment to work and charities is just amazing, and that's the culture we want. Got to keep those egos under control. An arrogant person is a dangerous investor. I'm going to finish with this slide. It's got our mission statement at the top. Driving outstanding results for investors and clients by deploying capital and ideas that help businesses succeed and grow. I think we've never been better positioned to deliver on that mission.
Despite the low returns in the economy of general, we're earning great returns on the money we're putting out today. I've just put the investment level returns of all of our funds in the last year or so on this page. You can see they're great. They're spectacular. Indeed, actually, they're the highest we've ever had. We're very confident we can deliver returns for investors in this environment and going forward. Thank you.
Ladies and gentlemen, if you could kindly raise your hand, we will start the Q&A session with Tony and Steve. If you could please say your first name. Thank you.
Thanks. Rob Lee at KBW. Maybe, Tony, you could talk a little bit about, you touched on the cross-selling just at the early stages. Could you talk a little bit about some of the resources or infrastructure you've put in place to try to maximize some of those cross-selling opportunities? Given the competitive landscape, maybe what really gives you the confidence and how much do you really think you can drive cross-selling? Do you have a target, like three products per client or LP? How do you think of it?
Okay. Well, we don't have any rigorous targets, but basically each of our groups has its investment relations and business development programming. Then in the middle of that, we have a firm-wide investor relations group, which makes sure that all those groups coordinate, they all talk, that every time there's a fund raise, any investor targets that they don't know that another group has a relationship with, that connection is made. That other group is asked to help out. Steve and I look over the list of the investors who are in one fund and not in another. We're constantly pushing on that. One thing that the two of us focus on, really, I'd say more than just about anyone else in the firm, is really constantly marketing in the LP relationship and driving capital.
We do have some financial incentives for that, but it would be a mistake to think that's the most important part of it, because you kind of got to have that so that because there's always someone who thinks if you don't have that and you really mean it, why don't you have that? What really makes this work is the culture of sharing, and the people are proud of it. In all of their year-end reviews, every single person in the firm has to say, "What did I do for other divisions?" That's an important part of their year-end reviews. In each strategic plan that each business group does, there's a whole section they have to present on of what did our group do for the other groups. We get at it in a lot of ways.
Well, what we probably should have done is give you that neat chart we've got buried someplace at the firm of investors in one fund, in an area, different areas and so forth, and how much white space we still have, which actually is a bunch. One of the things yesterday, we had an internal meeting somewhat like this. They cheered a bit more after the different people. You're a quiet group.
They were paid to do that, though.
Yeah. One of our groups that was in real estate, Michael Nash's group, that was doing debt and real estate, raised whatever it was, $1.7 billion from investors we didn't have before. Mike stood up proudly and said that that investor group, which hadn't been with the firm before, subsequently put up $3.2 billion in other Blackstone products. That gives you some idea what the power of this is. If you have excellence in virtually every place and people have that good experience, then even though there's some walls at institutions that sometimes doesn't speak one to another, but they do meet in the lunchroom.
That enables us to do some pretty amazing things because the word of mouth internally. We also have divided the largest accounts in the world, basically, to the extent that you could stand looking at that slide with our faces on it. I sort of found that a little odd, looking at my face. What we do-
You get a lot of that.
Yeah. Increasingly. What we did is we've divided the largest accounts in the world up among our most senior people to make sure that we have special interaction with them at the CIO level and the other levels. The objective, of course, is to make sure that we cross-sell all of our products, which are terrific to that group of people. It's a huge focus.
We've done some other things, too. We hired Byron Wien a few years ago to be a strategist. He's not there to market anything but investors really want to hear, and he goes around the world talking to CIOs and investment groups all over. In Tom's business, he's got an advisory and a strategy allocation business, and it's really fantastic. He can put in risk returns and scenario analysis, and it helps big institutions figure out where they want to allocate. Hopefully, it usually shows they want to allocate to us, actually. I don't know why that is, but anyway, we've done a lot of things to further this.
We better go on.
Yep. Michael Kim from Sandler O'Neill. Just wanted to come back to TacOps. It seems like the interest and demand for that product has been quite strong right out of the box. Just wondering, as that product continues to scale and maybe other multi-asset strategies along with that, how do you see that playing out from an asset allocation perspective relative to the more traditional private equity or real estate type funds or strategies?
Well, that product's a lot of fun. I have more fun with that product than any of the other ones at the firm. The reason is we're innovating in something, and it's across all the asset classes at the firm. The investment committee is basically those same faces you saw up at management committee, which we've never done before. The way we've managed the firm is typically in real estate. It's the real estate partners. Just to pick on John, he happens to be in the front row, and I can't see Tom or whatever. There he is in the back. That group meets with all the partners. We meet every Monday with all of our groups, with Tony and myself, but it's just Tony and myself in that group, and we basically make joint decisions.
This is the first time we've taken the knowledge base and the intelligence from every one of our businesses and put them against one fund. It's really fascinating. We do it every Wednesday for management committee to run the firm well, but now we're dealing with individual investments, and it's remarkably informing, where Bennett will look at an opportunity in a different way from a safety perspective than an equity investor might. When we end up with really terrific products, and we're getting money in mega chunks, because as Tony was saying that the institutions have a problem with asset allocation in a fast-moving world. The internet is just speeding everything up, and you wait too long, and it's gone. A lot of these institutions have created significant size tactical opportunity allocations.
For the most part, they're uninvested because they can't figure out, most of them, how to deploy that because the information is slow-moving getting to them. A lot of times, it's come, it's gone, like Tony said. We're getting people looking at giving us a half a billion at a shot. We may have one that's larger. They're basically saying, and what we're doing with this, which is really fun, is that by explaining, and Blitz does a great job at this, what we see going on at the firm, they can change their whole portfolios, and they can make much more money by doing that than they ever can in our one product. It also ties those people to us in a very fundamental way because we're really helping them by them watching us. It's mutually reinforcing.
In addition, longer answer than you ever dreamed you'd get, that Tom and Bennett and Joe just don't show up at a meeting for that investment committee. They bring two people with them, typically, from that group. They learn to see across all the asset classes as well. There's almost nobody in the world who really is trained to do that in the alternative area. Tony is, I am just by accident, right? We just happen to go to these things, and eventually, you see the patterns, you learn. We could be replaced by other people on that slide because we've all been trained in that system. Now we've got the management committee and two levels below those sort of apprenticing and clients loving it.
Let me just comment on their asset allocation. Tac Ops, each fund has a mandate with LPs that's well-defined. Tac Ops doesn't play in those mandates. It's doing the spaces in between the white spaces and things like that. It doesn't overlap. I just want to be clear about that. In terms of which assets are in which part of the world, it's going to be really hard to say. We've done ships, we've done spectrum, we've done royalties, we've done small equities, we've done distressed debt. We've done things in Asia, South America, and the U.S. It's where the opportunity is, and the whole key is not being locked into a preset strategy or asset allocation.
Roger.
Hi, good morning. Roger Freeman, Barclays. Just bigger picture, looking at your AUM mix, it's obviously clear as you point out.
Roger, can you speak up a little?
Continue.
The shift in your AUM mix, you've obviously made clear today how that's diversified since the IPO. It's a pretty balanced mix across the four key businesses. I'm just thinking over the intermediate term and then longer term where that might be tilted. It sounds like from the emphasis today that the real estate and private equity businesses are more in a realization mode. I know that's generalizing somewhat. A ton of growth opportunities in hedge fund solutions and credit. Does it continue to shift more into those other businesses, or is the cyclical component of private equity and real estate kind of bringing that back into balance?
It's pretty balanced.
Are you saying?
First, it's hard to give you the answer because it's a function of the continual invention of new products and matching what's happening in the world to what we can produce. As you saw, every one of those businesses it's like watching a great basketball team, right? The ball's being whipped around and people are putting in what look to be easy shots. Whether they're easy or not only matters if they go in. We're experiencing that in all of our groups. It's like rushing across a front with tanks.
Yeah, put another way.
It's hard to tell.
where they're all growing, even if at differential rates, you're not going to see a big shift.
Just to add, I think one of the important points of today is the way we think about product and the way we innovate product, there are products popping out all over the place. Real Estate has how many funds in the market right now?
Three.
Three. They're in fundraising mode. There's not a planned asset target mix.
One thing I'd ask you all to think about because it's fun to see you all. By the way, I apologize that Tony and I don't see you as much as we probably should. The reason we don't is we're doing this type of stuff. If we do this type of stuff and the firm works great, we were sort of hoping that things with you would work out well. What I'm saying, my own observation is they're not working out well, we should either see more of you, or you should believe what we're saying. I don't understand for the life of me as just sort of a fundamentally trained Graham and Dodd investor how something like what you just heard about for the last three and a half hours is a nine multiple. I just can't believe it.
You've got the best returns, basically, in the world. You've got growth that's hundreds of % higher than companies that are valued at double the multiple. One day, you're going to wake up, in my view, as an investor, and say, "What was I thinking? What was I thinking?" Because over time, these things have to adjust. That's what investing is. I would premise to you, forget that I'm a party of interest. I also am not unobjective, that you're going to look at this kind of stuff, and you're going to say, "Nine? Who came up with nine?" I put it out there for you to think about.
Yeah. Paul Tucker from Egerton Capital. One of the prevailing themes today, you have been, in many ways, a beneficiary of regulatory change, and that's in things like Volcker, Basel, Solvency II. Those are some of the things that you and your colleagues have mentioned. At the same time, you take retail money today. You lend money to companies. I don't like to use the term, but GSO is in many ways part of the reforming and rebuilding shadow banking system, in a good way. How do you think about the potential negative consequences of regulatory change, and what are your regulatory affairs people telling you to stay closest to?
Well, as you point out, we've been the beneficiary of regulatory change, but we're merely the beneficiary of markets. I think it's because of people like us, we don't view ourselves as shadow banking systems. Because of people like us, the banking system is healthy because they can sell assets, and they can raise capital when they need to. Our regulatory affairs people, I guess, we don't see a lot of Blackstone specific or alternative asset management specific risks out there, away from the whole tax thing, which has obviously been a lot of talk about that. In terms of Dodd-Frank and that sort of thing, we manage money for other people, just like most of you do at the end of the day.
Hey. Patrick Davitt, Autonomous Research. Tom mentioned the exit opportunity in the hedge fund seeding business, which is something I don't think a lot of people have thought of. I have two questions around that. One, are the mechanics of those exits going to be similar to the private equity type carry fee? Two, if so, what kind of MOICs do you think that business will generate?
David, why don't you let Tom answer that? He'd be better off than me.
When we negotiate the deals going in, typically for $100 million-$150 million as an LP, we get a revenue share that typically is order of magnitude 20%. When we negotiate that deal, we bake in an exit. As I mentioned, it's usually three to three and a half years. It's a multiple of assets under management and/or EBITDA at that point in time. Depending upon the business, those multiples are either higher or lower. It's situational depending upon the negotiation. It is, in effect, a one-way right where the start of the business and the owners, the GP, has the right to buy us out. After a period of time, we have the right to sell it. There's usually a window. Right now, with various of our managers, they have, because they're growing so rapidly, wanted to buy us out.
Again, we haven't disclosed what those multiples are. If you think about order of magnitude 4 to 5 times EBITDA, that would be typical. There is an arbitrage opportunity because buying a GP interest for a going concern at 4 to 5 times EBITDA is probably less if the business continues to grow and earn money than that business is worth. A lot of our GPs in seed land are saying, "Are we going to do another deal in order to raise capital to buy the BAAM piece out?" That's why we're creating our own drawdown fund to be able to take advantage of that potential arbitrage.
One thing that was mentioned here that I want to emphasize is, Tony mentioned it, I think Joe mentioned it, is this concentration of managers in our business. What happened in the earlier stages when the industry of alternatives was more immature, people would show up, and if somebody liked them and they seemed plausible, they'd give them money. Now they find out they have a collection of all these people with disparate performance and high expense of keeping in touch with all these people. The institutions generally have almost all decided to reduce the number of managers. That's happening at the same time that they're allocating a bunch more money to the whole asset class because as Tony mentioned, the returns are higher. Imagine being in a structural situation where you've got remarkable returns.
The institutions are simplifying who they deal with, they want to concentrate. In addition, you get that extra boost from having more money going into the alternative class, all at the same time. That's one reason why you're seeing, and will continue to see, quite strong levels of growth for a firm like ours.
Stephen and Tony, you both spoke to the sum being greater than the parts. Tony, you talked to the case study of U.S. Housing. Over the firm's history, we see this time and time again, your ability to kind of identify a white space and go attack it and connect the dots of the firm. I'm just curious, as you look at the landscape today, is there anything we're going to come back in 30 months, you'll deploy $10 billion and generate outsized returns?
Nothing that jumps to mind, frankly.
Nothing we'd share anyhow.
Hi. Thanks very much. Bill Katz from Citigroup. Thanks for today. Two different questions. First one, just to come back to the discussion on the relative valuation of your company versus others. One of the pushbacks we get when we talk to investors is the structure of the firm, the public trade partnership versus a C-corp. Could you talk a little bit about the pros and cons as you see that, and what might it take you to change to a C-corp? I have a follow-up question.
Should we let John do that? John, you want to do that?
Yeah, John can do that.
LT.
LT. Yeah.
Take your pick, Bill. John will give you a better answer.
Go ahead. You got it. Go ahead.
A couple thoughts on that. I think for the majority of our investors, the PTP structure is still tax advantageous, and so it outweighs some of the issues with having a K-1. Through advances in technology and other things we've done, our investors are getting an electronic K-1 before April 15th. They're able to do that. The structures last year, for example, if you were a full taxpayer individual at the highest individual rate, your taxable income as a percentage of your distribution was only 50%. If you net that against the actual tax rate, it was down about 15% effective tax rate. It is a tremendous amount of savings. We think over time, that we're starting to see more retail interest in BX and more of the retail brokers are getting more familiar with how to deal with the K-1 situation.
There are more PTPs out there. Right now, Bill, as we look at it, we still think it's the optimal structure. We think it's the right structure for the type of businesses we manage, and it has tangible benefits to the unitholders.
Yeah. Structurally and tax-efficient wise, there's no way you would want to change it. We've been working, Weston and LT's tax team spent a lot of time with many institutions on figuring out how to work around the hurdles internally. That's largely changed. When we went public, there were about six institutions that owned more than a million units. Today, that number is like 50. I think that's it. I think the bigger issue in the industry, less so for us, is liquidity. If you look at what we trade on an average dollar basis today, we're probably running at around, I don't know, $120 million-$150 million a day. If you look at some of our peers, it's like a very small fraction of that. I actually think for larger institutions, that's the much bigger challenge.
We are mindful, though, notwithstanding the tax benefits, that the complexity is a negative. I mean, clearly. Actually, if we lost the tax benefits and went to a C-corp, I'm actually not sure that it wouldn't trade better, ironically. We try to do the right thing and let investors make the right decision.
Last question.
Jeff Harte from Stifel. In terms of the retail strategy, would you say each business has its own appropriate product? In terms of awareness and distribution, are you doing it by business or will it become centralized? Can you give us a sense of the initial acceptance? DC is going to be a long-term issue, I guess. How are the various types of retail investors and distribution partners reacting at this point to product?
John? What happens in those areas is that these large retail systems don't sell your product all equally through. What happens is their biggest FAs tend to do a vast percentage of the business. The fact is that almost all of these large retail systems are vastly under-allocated to alternatives as compared to their objective. On average, I guess, the firms run somewhere around 2% in alternatives, and their internal strategists have that somewhere between 10%-20%. The area where they are with their alternatives just ends up being, for the most part, hedge funds. Meanwhile, their customers are earning by the standards of what we do, like small fractions of return. What's happening is we meet with these people, and I do some of this myself, it's sort of like missionary work with them.
The groups of people meeting with us are escalating in size, and it's a huge potential market for us. As Tony showed, we did $6 billion in the last year, and that chart's really going up. We've been selling at retail for quite some time. This isn't actually a complete innovation for us because we've been marketing a variety of our funds. What's happening now is that the number of products that we can sell and the scale at which we can sell them, and the fact is with a retail system, if you sell them something and it does really well, the next time you come to market with one of those products, it's like a wonderful moment. When you do it the third time and the fourth time and the fifth time, what John was saying about the use of a brand, becomes exceptionally powerful.
This should, over time, really become a large thing because it's meeting a need with what those institutions are encouraging their customers to do, and we have the best brand name in that channel for all the types of reasons that we've discussed.
You asked a couple specific questions. Each one of our groups, every one of them, has done more than one product or multiple products through retail, first of all. Secondly, it's a hub-and-spoke system. We have a central group that organizes the retail distributions and matches up with the distribution systems. The distribution systems are either brokerage firms or private banks. That's centralized and is dedicated to that. In terms of the DC, it's too early to say.
I think it's time to bring this to a close just because we don't want to starve you as well as wake you up at 6:00 in the morning. We want to all say thank you. Joan Solotar and Weston do a terrific job for us, trying to answer all your questions and keep in touch, and if there's anything you think we should be doing differently, you should let us know. We're here to serve you in a variety of ways. Everyone who's been talking to you owns a lot of stock. We're not the friendly opposition. We're on your team. When things go well, they go well for all of us. We have a strong belief based on what we know that things should go well for all of us over a sustained period. Thank you very much.
Thanks.