Good day, everyone, and welcome to the Blackstone 4th Quarter and Full Year 2020 Investor Call hosted by Weston Tucker, Head of Investor Relations. My name is Leslie, and I'm the event manager. During the presentation, Your lines will remain on listen only. And a coordinator will be happy to assist you. And I'd like to advise all parties that the conference is being recorded for replay purposes.
And now I'd like to hand you over to your host for today, Weston. Please go ahead.
Perfect. Thanks, Leslie, and good morning, and welcome to Blackstone's 4th quarter conference call. Joining today are Steve Schwarzman, Chairman and CEO John Gray, President and Chief Operating Officer and Michael Chae, Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10 ks report later next month.
I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control and may differ from results materially. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, Please see the Risk Factors section of our 10 ks and 10 Q filings. We'll also refer to certain non GAAP measures and you'll find reconciliations in the press release on the shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund.
This audiocast is copyrighted material of Blackstone and may not be duplicated without consent. So a quick recap of our results. We reported GAAP net income for the quarter of 1,800,000,000 Distributable earnings were $1,500,000,000 or $1.13 per common share and we declared a dividend of $0.96 per share to be paid to holders of record as of February 8. With that, I'll turn the call over to Steve.
Thanks, Weston, and good morning and thank you for joining our call. Blackstone reported exceptional results for the 4th quarter, including our best quarter for both distributable earnings and fee related earnings in 35 years. Realizations rose to a record $21,000,000,000 as global markets recovers from the trough of the crisis. At the same time, we deployed $25,000,000,000 into new investments, also a new record adding to the foundation of future value. The power of the Blackstone brand has never been stronger.
We achieved nearly $100,000,000,000 of inflows in 2020 ending the year with industry record AUM of $619,000,000,000 While these results would be remarkable in any environment, they are particularly so in a year where the world faced unprecedented challenges, including the steepest economic downturn in modern history. Our business is built to navigate the difficult periods and to deliver for our investors in good times and bad. Limited partners around the world know that by investing with the best alternative managers, they can generate better returns than by investing in traditional asset classes alone. That's why capital flows have increasingly migrated towards the alternatives asset class and to Blackstone in particular. We believe this trend will continue, particularly in an environment where interest rates are expected to remain historically low.
Blackstone is the reference institute in our rapidly growing sector as is readily acknowledged by third parties. For example, Morgan Stanley published a report entitled 30 for 2021, they mean Blackstone as one of the best companies in any industry based on its review of business quality and competitive positioning. We've continued to take market share, Raising well over $200,000,000,000 over the past 2 years, comparable to the fundraising of our next 3 largest peers combined. We have the most recognized brand
with both
institutions and retail investors and our unique culture continues to set us apart, characterized by the highest standards of excellence and an unwavering dedication to serving our clients. We have extraordinarily capable people at every level of the firm as well as the ability to recruit exceptional talent in the occasional circumstance where we look externally for someone to help us build a business. Our investment process is highly differentiated including a rigorous focus on choosing the best sectors and assets, Always with a priority of protecting capital. This is evident in the way we concentrated nearly half of our own state portfolio in Global Logistics and Life Science Offices in the years ahead of the recent downturn. Our positioning helped drive 1100 basis points of outperformance for our opportunistic real estate funds last year as compared to the public REIT index.
That's 1100 basis points outperformance. And unlike investing in public stocks, We create value in our investments through our expansive portfolio operations and asset management capabilities. The result is the exceptional long term investment performance that defines us as a firm, including 15% Net returns annually in both corporate private equity and opportunistic real estate for 3 decades.
The power
of our brand has been continuously reinforced by our performance to market cycles of the past 35 years. This was particularly true during the global financial crisis when we extended our leadership position in every area and launched multiple new businesses Setting the stage for the next decade of remarkable growth. Since our IPO, which immediately preceded the financial crisis. We've grown our AUM 7 times, launched 34 new strategies and significantly expanded our business internationally. We are similarly emerging from this most recent downturn with powerful momentum.
John will describe the broad range of growth initiatives we have underway across the firm, many of which are in the earliest stages of their vast potential. As we continue to grow, our capital base is shifting towards perpetual strategies Such as real estate core plus infrastructure, insurance solutions and private credit. These areas are characterized by large scale investor allocations as well as a much larger universe of potential deployment opportunities than where we've focused historically. As the nature of the CapEx evolves, So does our earnings mix towards steadier and more recurring fee related earnings, which is highly valued by the market. For the full year FRE reached $1.97 per share, effectively achieving Our Investor Day target of $2 per share, but 1 year earlier and notwithstanding the pandemic.
FRE comprised approximately 2 thirds of total earnings in 2020, up from only 1 third in 2017. Looking forward, we have great confidence in our continued FRE momentum, which should further support the revaluation of our earnings multiple that has been underway since our corporate conversion. As we move into 2021, all signs point to it being another strong year for the firm. The pandemic will further impact the economy over the next several months. Widespread and effective deployment of vaccines, which we anticipate will occur, we expect a robust recovery in global growth later this year.
And as the economy accelerates, Blackstone is well positioned to continue strong growth ahead. I couldn't be more proud of our firm's people, our culture and the prospects for the future for both our limited partners and our fellow shareholders. And with that, I'm very glad to turn it over to John.
Thank you, Steve, and good morning, everyone. We just completed a record quarter. I'll take you through some of the highlights as well as the Extraordinary range of growth engines that are firing across every area of the firm with a major emphasis on perpetual capital. The foundation of our business, of course, remains performance. When we deliver great returns, it builds investor trust and leads to further inflows.
It's a virtuous circle that also involves Acting top talent, moving into new areas and growing meaningfully. In the 4th quarter, our funds again posted exceptional returns across the board. For the past several years, we've been orienting the firm towards faster growing areas such as life sciences and those connected to the digital economy. These continue to be amongst the best performing sectors of the market and were the largest drivers of appreciation in our funds, including our holdings in global logistics, digital payments and enterprise software. Our investment performance is creating very favorable dynamics with our customers and they continue to allocate more capital to us.
Inflows were $32,000,000,000 in the 4th quarter and reached $95,000,000,000 for the full year, the 4th consecutive year approaching or exceeding $100,000,000,000 Last January before the crisis, we told you we thought we'd reach this level again in 2020. We're pleased we were still able to achieve our original goal, a testament to the confidence our investors place in us. Looking forward, demand for our products remains as strong as ever, including for new areas that represent tremendous potential. In growth equity, we expect our inaugural vehicle to soon reach It's $4,500,000,000 hard cap. Our life sciences business is deploying capital at a rapid pace and is well positioned for growth.
In private equity, we're raising our 2nd Asia fund, which we expect to be meaningfully larger than the first. And in tactical opportunities, we begun raising our 4th vintage in the context of continued strong performance and deployment. In real estate, our core plus platform has grown to $69,000,000,000 up 50% year over year across 5 perpetual capital vehicles. We launched the 5th BPP Life Sciences in the 4th quarter with the recapitalization of biomed, raising $8,400,000,000 so far. We've been actively investing this new capital and in addition to biomed committed in Q4 to acquire a large portfolio of lab offices adjacent to MIT in Cambridge, the world's leading biotech hub.
B REIT, our largest core plus vehicle now has $22,000,000,000 of AUM, up Accelerated meaningfully from the bottom of the crisis with approximately $900,000,000 of inflows on January 1. Investor demand for resilient income producing assets coupled with the Blackstone brand is a powerful combination. As we've stated before, we believe BREIT could become the single largest earnings driver at Blackstone. Perpetual AUM across the firm has more than doubled since Investor Day to $135,000,000,000 helping drive 73% increase in fee related earnings over the same period. In addition to real estate, our perpetual capital vehicles and infrastructure and direct lending are seeing strong momentum and have grown to leading scale only a few years after launch.
In infrastructure, We raised $14,000,000,000 initially and are now seeing deal activity accelerate in both the U. S. And Europe, bringing the fund to approximately 40% committed. In credit, our global direct lending platform has grown to $22,000,000,000 one of the largest in the world. Our scale allows us to provide bigger and more comprehensive capital solutions to borrowers.
And the opportunity is enormous with sub investment grade financing markets in the U. S. Alone totaling nearly $3,000,000,000,000 Post
quarter end,
we launched our non traded BDC, BCRED, with over $800,000,000 of commitments at the first closing. As with BREIT, we anticipate strong monthly demand from individual investors for Blackstone Managed Income Solutions. Also in credit, we acquired DCI in the 4th quarter, a pioneer in systematic investment strategies, which we see essential to the future of liquid fixed income investing. DCI will meaningfully expand our capabilities in the vast high yield and investment grade markets and will further differentiate our business as we integrate their technology across the credit platform. In total, the Credit and Insurance segment reported inflows of $13,000,000,000 in the quarter $28,000,000,000 for the full year.
Turning to BAM, we continue to see strong demand for our various direct investing strategies, including our 2nd GP Stakes perpetual capital vehicle, which has raised $4,000,000,000 to date. We were excited to announce recently that Joe Dowling, former CEO of Brown University's Investment Office Is joining Blackstone as Co Head of BAM alongside John McCormick. Joe is a world class talent with proven experience investing and managing risk. In the 7 years of Brown, the university ranked number 1 amongst pairs on 1, 3, 5 and 7 year returns and achieved the highest Sharpe ratio of any major U. S.
Endowment, driven in large part by their successful hedge fund investment program. Joe's leadership will be a major asset to BAM as we continue to expand into new areas. Our secondaries business remains one of the best positioned globally in a sector with huge tailwinds. SP's 2019 flagship fund is over 75% committed and we
expect to start raising the successor later this year. We also continue to grow And we recently launched a new strategy investing alongside GPs in high quality assets that they want to continue to own beyond their initial fund term. Finally, in insurance, we just announced the acquisition of a life insurance and annuity company from All With $28,000,000,000 of long duration assets.
The acquisition will be completed through a new Blackstone managed vehicle was approximately $2,000,000,000 and our insurance solutions team will act as the asset manager, bringing the firm's pro form a insurance AUM to nearly $100,000,000,000 Given insurers' need for better returns and our direct credit origination capabilities, we expect to do more in this sector in support of their policyholders moving forward. In some of the challenges that we're executing against, We remain extremely confident in the path forward. And with that,
I turn things over to Michael. Thanks, John, and good morning, everyone. The Q4 represented a remarkable finish to the year as we achieved record results in nearly every metric, distributable earnings, fee related earnings, AUM, realizations, deployment and total fund depreciation. We also reported our 5th best quarter for inflows. This broad based success in the same year as one of the most severe market declines on record is a powerful illustration of the all weather durability our business model.
Starting with results. Fee earning AUM increased 15% year over year to $469,000,000,000 while total AUM rose 8% to $619,000,000,000 driven by robust gross inflows of $95,000,000,000 for the year and despite $43,000,000,000 of realizations. The strength of inflows in 2020 despite not raising any of our largest flagship funds during the year highlights the firm's expansive breadth of product offerings and the ongoing shift toward perpetual capital. Indeed, over a quarter of the firm's The earning AUM is now perpetual. Fee related earnings rose 33% in 2020 to $2,400,000,000 or $1.97 per share as Steve highlighted, driven by continued strong growth in fee revenues coupled with significant margin expansion.
Management fees increased 18 percent to $4,100,000,000 for the year and are up 35% over the past 2 years, powered by our flagship fundraising and a doubling of the Real Estate Core Plus platform in the last 2 years. CREIT alone increased its AUM by 71% in 2020 and generated strong gross appreciation of 9% for the firm despite the environment. In terms of margins, the firm's overall FRE margin expanded over 400 basis points in 2020 to 52.8%, the highest level ever for an annual period. Distributable earnings for the full year rose 16% to $3,300,000,000 For the Q4, DE increased 60 percent to $1,500,000,000 or $1.13 per share, underpinned by sharp growth in FRE and a doubling of net realizations to $897,000,000 In addition to strong fund realizations, Most of BAM's liquid strategies crystallize incentive fees annually in the Q4. BAM's strong finish to the year in terms of investment performance with a 5.6% gross composite return in the quarter as well as the growing contribution of its direct investment strategies generated a 57% increase in the segment's realized performance revenues to $171,000,000 Turning to investment performance.
It was another excellent quarter for the firm across the board with record total fund appreciation of $31,000,000,000 in the quarter. As John highlighted, we continue to see the benefit of favorable sector and asset selection in our funds against a backdrop of rising global equity and credit markets. In real estate, the Brett opportunistic funds appreciated 4.3% in the quarter, while the core plus funds appreciated 5.5%. As has been the case since the start of the pandemic, the vast majority of the real estate portfolio is demonstrating fundamental strength, particularly our holdings in logistics, suburbanmultifamily and life sciences office. Despite headwinds in certain more affected sectors, the Brett funds appreciated 3.4% for the full year and the core plus funds appreciated 7.9% as compared to a 7.6% decline for the public REIT index.
In private equity, the corporate PE and TACOP funds appreciated 10.6% and 11.3% respectively in the 4th quarter, marking the 3rd consecutive quarter of double digit appreciation for both platforms. Strength was broad based across both private and public portfolio led by our technology and consumer finance holdings. For the full year, The corporate PE funds appreciated 11.9%, while TACOPS appreciated 14.1%. Recent vintages for the quarter, private equity and tac ops funds remains outstanding. The secondary funds which report on the 2 quarter lag started to recognize the benefit of last year's market recovery in their 4th quarter returns appreciating 9.4%.
We expect Strong performance to continue over the coming quarters given the direction of markets in the second half of twenty twenty. And in credit and hedge fund solutions, we saw healthy appreciation again in the 4th quarter, including a 4.6% gross return for the credit composite. Strong investment performance across the firm generated $1,200,000,000 of net accrued performance revenues in the quarter and lifted the balance sheet receivable to $3,800,000,000 up 8% sequentially, notwithstanding nearly $1,000,000,000 of net realized distributions. At the same time, The firm's invested performance revenue eligible AUM increased to a record $294,000,000,000 up 18% year over year. These are both important indicators of future value.
One last topic of note. 10 years ago, Blackstone made a Strategic minority investment in the Brazil based alternatives manager, Patria, a team we had known for many years. Last week, Patria completed a highly over Subscribed initial public offering, marking their transition to a valuable public company and a successful investment for Blackstone. While we partly monetize our stake in the offering, we remain a continuing shareholder. In closing, the firm's 2020 performance exemplified the power of Blackstone's extraordinary business model, resiliency and staying power during the market dislocation and the ability to deliver record results in the Q4 across almost every metric in the context of the market recovery.
Looking forward, we continue to scale existing businesses while also expanding into new areas with deep addressable market opportunities for the firm. The outlook for robust high quality growth over the long term is strong and we believe the future for Blackstone is very bright. With that, we thank you for joining the call. I would like to open it up now for questions.
Great. And Leslie, before you queue for questions, if I could just remind all the analysts we have a fairly long If you could please limit your questions to just one question initially and then if you have a follow-up, please reenter the queue. Back
to you,
Leslie. Okay, thank you everyone. Your question and answer session will now begin. And your first question comes from Alexander Blostein from Goldman Sachs. You are now live in the call, Alexander.
Please go ahead.
Great. Great. Good morning, everybody. Thanks for taking the question. Why don't we start with insurance?
I guess, in light of the Allstate acquisition announced last night, Maybe you guys could comment on your bigger picture aspirations for the insurance segment. Obviously, you made several hires there recently. Should we expect more deals like this one, I guess, over the coming quarters years? Or is Allstate meant to be sort of the platform to build off of? And then secondly, maybe you could comment on the economics as well.
So the fee rate on the assets and how you expect that to evolve as well as the funding structure. It sounded like the majority of the Purchase obviously comes off the balance sheet, right? So $2,000,000,000 I think you said is third party capital relative to a $2,800,000,000 purchase price. So A few questions there, but maybe we can try to hit on
all of them. Thank you. Okay.
Thanks, Alex. I'll start with the big picture. And what's Driving what you're seeing us do and a number of firms in our industry is the extremely low level of interest rates out there, which is creating the need for Greater returns for insurance company assets and particularly the ability to have direct origination capabilities. So our ability To originate corporate debt, structured debt, real estate debt is quite important and we think gives us A real strength in this area to line up our insurance solutions business with insurance balance sheet. So this is an area we've had Success with Fidelity Guaranty.
We've said on these calls, this is something we intend to do more of. It's an area of focus. We're obviously hiring A number of people to help build out this business and capability. Exactly the format will take, I think each of these transactions may look and feel a little different. The underlying sort of path here is the same.
The idea of us Managing these assets, driving the returns higher, which ultimately helps the policyholders. I think all of that is On this particular transaction, and Michael can fill in the blanks, but the $2,800,000,000 there are Flows related to the transaction plus a bit of debt. So the ultimate check size here is less Then a little less than $2,000,000,000 of equity. It's more of a typical GPLP setup, I would say, but we are putting in some capital, Single digit percentage of the total capital needed. So this is really a third party situation where we're managing capital And our compensation will come from managing the assets along the lines of what we've done with Fidelity Guaranty.
Great. Thanks Alex.
Okay. Thank you. Our next question comes from Sumit Modi from Piper Sandler. You're live with the call. Please go ahead.
Hey, thanks. Good morning, guys. Just sort of a high level question here. On creating these new dedicated funds across growing sectors like life Sciences and Growth Equity, some of these flagship funds, the raises are now behind you. The global growth Seemingly concentrated here to areas like technology and healthcare.
When you were creating these dedicated funds in some of these areas Like you're doing now and down the road, does it kind of crowd out some of these deployment opportunities to the flagship funds? Or is there just kind of generally a lot of opportunities out there for global private equity funds to take advantage of or kind of along with some of the newer dedicated funds?
It's a good question. I would say it does not crowd out our dedicated funds, our traditional large scale Private Equity Funds. And the reason is the mandates here are very different. So if you look at the 2 funds to focus on, Let's talk about Blackstone Life Sciences. Its mission is to invest primarily in Phase 3 trial drugs, Something that we would not do in our private equity business have never done before.
And so it's a completely new area and may invest in companies. But again, it's Based on drugs that we're waiting for FDA approval, this is not something we would do in our private equity business. In the growth equity business, we're taking minority stakes with founders, which is of course is very different than our private equity model, which is based on control And being able to intervene in these businesses. In our growth equity area, we're looking to partner and help these young companies generally working with founders, again, A very different model. And then some of our other more geographic strategies are similar to what we've done in the past, where we've raised Energy or Asia or other funds.
And we keep a portion of that in the main funds, but we by expanding with the new fund, We don't have over concentration in the main fund in a particular geography or sector. So we're super sensitive to our flagship funds delivering in real estate private equity and corporate private equity is what we built the business on. We want to continue to deliver for those investors. There just happens to be a lot of white space, new areas to go into that we as a firm had not historically been in.
Your next question comes from Michael Cyprys. Your line is open. Please go ahead.
Hey, good morning. Thanks for taking the question. Just looking at the dry powder levels here, about $147,000,000,000 look fairly high here and certainly similar levels a year ago So I was hoping you could talk a little bit about how you're expanding your capacity to generate new investment ideas And expanding the capacity to put capital to work, particularly in size and with the new insurance business or expansion of the insurance business that you'll be I guess what new sourcing and origination capabilities are you thinking about adding or might be able to add?
Well, the good news here is we just have a much broader base of capital today. Achieving the highest return strategies involves a smaller universe potentially of investable assets. As you raise particularly some of this perpetual Capital, longer duration, lower yielding, you can look at a much broader view. So yes, we're investing in origination capabilities And particularly in our credit area and corporate and real estate and structured credit, but also in our equity investing as we move into Core private equity or the real estate core plus business, we're just hiring more people in these areas. It gives us more dialogue.
But oftentimes, you're not necessarily using real estate as an example, looking for an empty building or distressed situation. You're just buying a leased apartment project that's high quality, you want to own at a reasonable return. So this newer cost of Capital enables us to sort of widen the funnel. And then you take our existing team, you add more people and it actually makes Our original business is even better because we're in more dialogue with more sellers, more brokers, more investment bankers. We're just part of the flow and there's really been a real benefit from expanding our platforms.
And if you think about it on the credit side as well, If you went in there and you only had the ability to do higher returning mezzanine, you would only have one discussion. But if you can go in there today and you have a wide variety of capital with different durations, lower loan to values, longer duration insurance capital, What we're getting from our direct lending platform, you have a much more robust discussion. And so we're finding the ability to deploy more capital Given the range of places, given the opportunities, and yes, to your question, we have to build the organization to meet these needs.
Okay. Thank you. Your next question comes from the line of Adam Mehti from UBS, you're live in the call. Please go ahead.
Thank you and good morning. I wanted to ask about the wealth management channel given the Excess of B REIT and promising start to B cred. In terms of distribution, which sub segments in the wealth channel do you find attractive? And what kind of resources on the distribution side are you applying towards that? Also maybe what product adjacencies might be attractive at this Thank you.
What I'd say about retail is we had a big event here. We had a modest celebration Crossing $100,000,000,000 of AUM, Joan Solitzer and her team have done a terrific job. And it's a mix Of the episodic funds that we still distribute, that's generally targeted to the highest net worth investors. As we move into these perpetual capital vehicles, BCRED and BREIT, which do have elements of liquidity to them That are favorable to customers. They come down in terms of the availability and it expands the universe of potential customers who can invest.
I would say in distribution, we're trying to really cover the waterfront. We're talking in the United States, in Europe, in Asia, We're raising money broadly. It's RIAs. It's obviously the largest distribution firms. It's Private banks around the world.
It's the IBD channel. It's really broad based. And what investors are seeking is obviously higher return. They want more yield. They're looking for things done at Blackstone Quality.
And we're focused on The fees we charge being quite reasonable that we're looking for the customers to have a great experience. And I think historically in private assets Distributed to retail, there was a bias, I guess, to try to make short term money and not necessarily deliver a great customer experience. What we're trying to do here is give individual investors the same experience that our institutional investors have. The products may look and feel a little different, But the goal is exactly the same. Obviously, the markets are reacting positively, investors are.
The strength of the brand here is very differentiated. And that's why we have so much confidence here in the potential of this. We said BREIT could grow to be the largest product. BCRED has very good momentum out of the box Given people's desire for yield, I think some of these products will be able to move geographically when you raise money in different parts of the world. There's more we can do.
We're not ready to announce anything. But what I'd say is our bias is not necessarily to create a massive number of products, But a smaller number of very large products that can scale. And BREIT getting over $20,000,000,000 was another big achievement for us. So As you can tell, we're spending a lot of time in this area. It continues to grow the perpetual capital and we expect good things from retail in 2021.
Great to hear. I appreciate it. Thank you.
Your next question comes from the line of Craig Siegenthaler from Credit Suisse, you're live in the call. Craig, please go ahead.
Good morning, everyone. For my question, I wanted to hit on Blackstone's ability to expand into newer geographies, including in Asia and South America. And specifically, what are the major economies and market in white spaces around the globe today where Blackstone is either not present Or is significantly subscale? And what is Blackstone's appetite to expand into these geographies either through M and A organically over the next few years?
Well, as you know, we definitely have a global business. I would put Asia at the top of the list, Given the scale of the economies there, China and India both have more than 1,000,000,000 people. And what you see there in China in particular is an economy that's growing very rapidly, We'll grow to be the largest economy in the world at some point in the future. I think there's an opportunity over time for us to Offer products that are RMD based. That would be something that could happen over time.
That could be very large scale. I think we can do more in countries like Japan, which may not be fast growing, but there's a strong desire For returns from individual investors and institutions. And India, frankly, has been our greatest strength in Asia, Where we've deployed a lot of capital in both private equity and real estate and that economy is still early days. I would say as a caveat that smaller economies for us are a little more challenging given the scale of capital we operate at. So and more less developed economies.
I would say our results in places like South America and Africa, Which have been small as very small as a percentage of what we do, have been a little more mixed. There could be opportunities in those markets over time. But I think in terms of geographic growth, I would say Asia and the big economies in Asia are the most interesting. And then I would say that Europe, despite its slow growth, aggregately is the largest economy in the world if you put all those countries together. There are fewer competitors there And there are more of our products that we can distribute there, both raising money, but also deploying capital In Europe for Europe.
So when I look at our one of our great strengths of the firm, it's that we're a global business. And so if one market around the world gets too hot, we can deploy capital elsewhere. Customers around the world are facing the same challenges, Which is they need higher returns and they want a trusted pair of hands who takes a long term approach and that's what Blackstone represents. So when we look, Yes, there's opportunity in retail, there's opportunity in insurance and there's certainly opportunities outside the United States.
Thank you, John.
Thank you. Your next question comes from Glenn Shaw from Evercore ISI. Please go ahead. You're live in the call.
Thanks very much. So curious to hear your expanded thoughts on the SPAC market, not from the humongous growth necessary that we've seen, but They have at minimum several $100,000,000,000 of buying power. And so I think of them as half friends where they could Beyond the lookout to purchase some of your assets and have far away they're competing against some of the same properties you go after. So just curious to get your thoughts on that environment. Thanks.
Well, I think it's back, Mark, and I I commented earlier this morning on TV about this. I think it's a good development long term to open up Access to capital with public companies. We've seen a reduction in the number of public companies by 50% over the last 25 years. And the SPACs have led to the highest number of IPOs in more than 20 years now. So I think that's positive.
Now that being said, I think there are some challenges around alignment of interest, when sponsors earn their economics, what the size of those economics are. I think some of that will change over time. As it relates to our business, we've announced, I think, 3 SPAC sales in the last few months. I think these will all be very good public companies. These are good executions.
And so it's helpful for us on the liquidity front. But I do think it's fair to say for smaller sized businesses in most cases, it gets a little more competitive with this SPAC money. The good news is we tend to operate particularly in private equity at large scale. So there's not many specs that can do the type of deals we do. And I would also say not every company wants to go public.
Certainly faster growing companies may want capital to grow. They're not ready to go public. Other businesses may not be. So it requires a certain type of company, a certain type of exit And tends to be a bit on the smaller size. So overall for capital markets, as I said, I think it's a positive.
I think there will be some changes in reforms over time to make it even better.
Thanks, John.
Okay. Thank you. Your next question comes from Kenneth Worthington from JPMorgan. You're live in the call. Please go ahead.
Hi, good morning. With the new administration and one with an aligned White House in Congress, what is top of mind in terms of implications and
So in terms of implications, There could be a variety. It's obviously early. It's possible we could see higher corporate taxes, which would impact the entire corporate landscape. We could see More regulatory activity. On the flip side, I think some sectors where we are Active investors could really benefit.
I think you could see environmental and Sustainability areas get a boost. We're doing a lot in that space across energy and energy credit. We could see more dollars into infrastructure Sure. An area we haven't underwritten a lot of corporate activity or government activity. That could change With a big push by the government.
And then I think one of the benefits people may not focus on is an aligned Government here could push more dollars to places like New York and San Francisco, hard hit urban areas during the COVID period. And that would be beneficial for some of the real estate properties we own because those areas are under pressure. So I think there's a variety of things. As a firm, We've operated in all red, all blue environments, purple environments, and we take a long term approach and we've been able to navigate Those issues and as changes come up, we expect the same here as well.
Okay. Thank you.
Thank you. Your next question comes from Patrick Davitt from Autonomous Reis. You're live in the call. Please go ahead.
Hey, good morning, everyone. So my sense from investors, they tend to want to kind of discount These big performance related fees you put through fee earnings. So could you maybe frame or help us separate out how much of the fee related Performance fees in the Q4 was really kind of what you guys repeatable each year versus those that are maybe more episodic Or based on kind of
1 year type performance fees? Patrick, look, first of all, in terms of Fee related performance revenues, as we talked about before, we think this is a super high quality revenue stream. As you know, it's derived from perpetual capital. It's paid on a recurring basis on contractual timetables, well known, and without having to dispose underlying assets. So We think it's very much in line with the overall quality picture of FRE.
And you've seen it scaling, Right. As we've sort of predicted in the last few years and you saw that step up again. In terms of the composition of it, Right now, the majority the strong majority of the total annual amount is from the Core Plus platform. And of that, B REIT is really the dominant portion of that. And that, as you know, is It's recurring, it's annual, it's in the Q4.
And as that platform grows and it grew 70%, as we said year over year, the fees will continue to scale both management fees and fee related performance revenues. A smaller portion of that was from the BPP platform. Those are specific to investments that occur On a several year basis, 3, 4, 5 years. And so that occurred during the year, both in Q3 and Q4. And then you're also seeing a smaller amount, but that over the long term it will scale from our direct lending platform, both our BDC and also Going forward, B Credit or non traded B2C.
So it's sort of a portfolio of different products. Core Plus is the biggest part, but not the only part. And BREIT is the biggest part within Core Plus. And that is, to your question, an annual
Occurrence. And the key distinction, Michael, is that we don't have to sell assets to generate these fees. That's the key distinction of
what Ends up in the FRE. That's right. And as we talked about, this is not a new thing in terms of I mentioned BDCs. The incentive fee portion of that income and yield in products like that have been, I think, for a long time considered Very much part of this sort of metric.
Thanks, Patrick.
Thank you. Your next question comes from Devin Ryan from JMP Securities. Please go ahead.
Great. Thank you. Good morning. I have a question just on the FRE margin. Obviously, saw Some really nice expansion in 2020 over 400 basis points, you had very strong fee growth.
But also the OpEx was Decently below the prior couple of year average growth, which we appreciate, especially given the lower T and E from the pandemic. So I'm just trying to Just think about some of the moving parts as we look forward, the expectation for the FRE margin from here, maybe some of those pandemic savings reverse And just more broadly, how we should think about the FRE margin and T and E and some of the costs that may come back into the system in 2021?
Devin, thank you for the question. You know what, the short answer is stepping back on margins, and it was a terrific year on that front, Is our margins are up significantly because of strong operating leverage. Revenue is currently well in excess of expenses. I know that's sort of a truism. And you can particularly see that in our real estate segment and which was really the biggest driver, where fee revenues were up over 30% With operating expenses total operating expenses up 15%.
And that's why you can do the math. Overall, the Real Estate segment accounted for Around 3, 3 quarters of the overall margin expansion from a business unit breakdown perspective. As you mentioned, as we've talked about Previously, as with almost every other business, 2020 did benefit from a substantial reduction in T and E spending. And that, Telethia, you accounted for around, call it, 100 basis points of that 4 40 basis point margin expansion. So look, as we look ahead to 2021, All of us, of course, are waiting for normalization sooner rather than later.
So and such that the T and E dynamic would reverse. And but notwithstanding that, even adjusting for that, we still expect strength in margins. So that's hopefully will help you on just to put in context the COVID component of that expansion.
That's perfect. Thank you.
Thank you. Your next question comes from Mike Carrier from Bank of America. You're live in the call. Please go ahead.
Good morning and thanks for taking
the question. You guys have had great success in the perpetual vehicles, which obviously provides good visibility and growth in FRE, But it also threw off a lot of performance fees. And I'm assuming that was just B REIT in the 4th quarter having a strong rebound. But just longer term, can you put Some context on the type of year maybe 2020 was versus the potential you see for that type of earnings stream It's still fairly new. And then how can products like Decred contribute to it longer term?
Thanks a lot.
Sure, Mike. And I think this takes up a bit on, I think, Patrick's question as well. I think the simple answer, and it's a good one, is that over time, those the growth in those fee related forms revenues will We'll be aligned with the growth in our perpetual capital strategies, with again Real Estate Corp. Plus being a huge portion of that right now, but also as you mentioned, in that direct lending area, a scaling of that source of performance revenues as well over time. So That sort of both in the short and long run is kind of the R squared on this growth in perpetual, growth in core plus, growth in direct lending equals over time growth in those fee related forms revenues and that is a meaningful tailwind.
And I would just add that The fact that you don't have to sell assets, as we mentioned, is important. The preferred returns in these vehicles tends to be materially lower because they're lower Targeted returns and just as we grow more assets in the space, have more vehicles, this should be a steady source of income For a long time to come.
Thanks a lot.
Thank you. Your next question comes from Rob Lee from KBW, you're live in the call. Please go ahead.
Great. Happy belated New Year. Hope everyone's doing well and thanks for taking my questions.
Sandy, you're around. Thank
you so much. On Hedge Fund Solutions, Dan, understanding the Forms
has been
good. You have a new co leader of the unit, but growth there has been kind of a challenge, kind of, I guess, more stable. How do you see growth of that business progressing? Do you see any signs that there's maybe increased demand for more liquid Strategies even have the markets have run up of late or what can you do to kind of reinvigorate growth in that business?
We think that business has tremendous potential. The low rate environment obviously has investors looking for other Liquid alternatives, where they can get returns. And then the run up in the stock market has investors Looking for places to put capital where there's some downside protection and both of those factors lead you I think to our hedge fund solutions business. With the addition of Joe Dowling teaming up with John McCormick, I think that puts us in a really good place. Joe's track record has been excellent.
We are going to be looking to try to drive the returns higher in that space. Joe was outstanding at Brown, finding Leading cutting edge managers, looking at where the economy is transforming either geographically in some of the fastest growing sectors as well. And we expect he'll do the same here. And as the returns continue to improve or improve, we think we'll see more flows. So Our hedge fund solutions business, which has flattened off in terms of AUM, but has actually improved on profitability.
Michael can comment on that. I think you'd grow in AUM and become a growth engine again for our firm. Yes.
I'd just add to that. I mean putting some financials around that. First, as John said, While AUM was somewhat down this year, revenues were up 7%. On the AUM side, outflows were actually in line with 2019. And maybe not surprisingly inflows slowed somewhat in the wake of the March April volatility.
But revenues were up, which reflects the business mix shift Towards higher fee strategies, both within BPS and also in the direct investing area. And as a result, you can actually see The 4th quarter management fee rate was actually up 8 basis points year over year. So the sort of unit economics are, I think are improving. And it's funny for a business that's been in our hands for 20 years, we've never been more excited about the potential. As John said, in the context of the rate environment, Fixed income market, the search for sort of absolute return replacements with some more upside is deep.
And our platform with its scale and its reach and It's access to the best managers doing things with them, allocating capital as well as the flow within our firm and the IP. Those things combined along now with additional leadership alongside John with Joe Dowling, we're super excited.
Great. Thank
you. Thank you. Your next question comes from the line of Chris Harris from Wells Fargo. You're live in the call, Chris. Please go ahead.
Great. Thank you. As you guys know, Apollo is looking to move to 1 share class. What are your thoughts about potentially going down this path? And I appreciate There are pros and cons to consider with that type of a change.
So what I'd say is if you look at our Firm over 35 years. Our governance structure has served our LPs really well our employees and for the last 13 years, 14 years our shareholders. So we're really comfortable with it. We're always looking at ways to maximize value for shareholders. We did that in the context of the C Corp conversion, But we're very deliberate in how we do things.
But I would say generally the idea of taking a long term approach in the management of the firm, How we're structured today, we feel good about that. It's delivered for us in the past. We think it will deliver for us in the future.
Thanks, Chris. Got it. Thanks.
Thank you. Your next Question comes from the line of Chris Prykki from Oppenheimer and Company. You're live in the call. Please go ahead.
Yes. Good morning and thank you. I guess I thought the Biomed transaction was really interesting and Couple of narrow questions about that. One is, I'm wondering, did it all end up in BPP Life Sciences or was it Distributed among a number of different vehicles. And then secondly, what is, I guess, the long term vision and vision for PPP Life Sciences.
And then I guess the more broad question I have is, over time as you develop more and more of these permanent or Very long dated capital structures. Should we see your strategy in the opportunistic funds kind of more from the Buy it, fix it, sell it to the buy it, fix it, move it into a permanent capital vehicle. Should we see a lot more of that?
So there are a number of questions here. Let me go through each one. The first one, I want to back up I guess for a second and just say that The genesis for this transaction was a number of our investors in the BREP 8 fund wanted to continue to own this. And That really what was the catalyst. And more than 70% of the capital in the BPP Life Sciences The call came from the existing investors.
So I think because they were so enthused about this, it made a lot of sense for us. Where it ended up, the vast majority of the capital did come from this new vehicle. We put some of it into our general BPP fund based on some available capital, but the vast majority ended up in BPP Life Sciences. No surprise our investors are excited about this new vehicle. I think we'll raise additional capital beyond the $8,000,000,000 we talked about.
There's a potential for this to grow to be again quite large. We announced the deal shortly after the initial recapitalization, Which I mentioned where we did a $3,400,000,000 deal of additional properties in Cambridge, the heart of life sciences, making us the largest Owner in Cambridge, which we think is important strategically. So this is a business that has the potential to grow, Not only in Cambridge, but in South San Francisco and San Diego, Cambridge, U. K, where the business is focused. In terms of ambition, I guess we've hit that.
I think this is an area that has real growth given the tailwinds we see in Life Sciences. And one of the things We don't often talk about on these calls is the power of the overall platform. So the fact that we have Blackstone Life Sciences gives us more confidence here in biomed. It allows us to do the cryoport investment in tech ops and frozen logistics. It allows us to do precision medicine, which is a company that commercializes and does Runs the trial for life science companies.
It was one of our largest investments in private equity in the Q4. So we are really building a powerful life science ecosystem Here at Blackstone and BPP Life Sciences will be a big part of it. Nick Galakatos, who runs our Life Sciences business, is actually going to be on the Board of the Biomed Life Sciences Fund. In terms of our opportunistic business, no, I don't believe this will be the way the vast Majority or whatever of deals will be sold. There was a pretty unique set of circumstances.
There may be other situations, but I think it will be the exception. In this case, the scale argued for it. We also ran a process, a competitive dynamic, brought in outside firms, had a go shop period. We want to make sure the most important thing to us as fiduciaries is maximizing the return in our private equity and real estate private equity funds. So I think this is a little bit of a unique situation.
We had a great process to back the values and long term now we have a bunch of investors excited about this area And a new vehicle that I think will grow in scale.
Okay. Very helpful. Thank you.
Thank you. Sure. Your next question comes from Onard Giblatt from BNP. You're live in the call. Please go ahead.
Hi, good morning. I had a question on capital deployment. It's been very strong in Q4 even if you exclude The capital going to the new perpetual capital vehicles. How much of this is a function of a good market condition or should And how much is a function of just being able to catch up on deals that were identified early in the year and where you were not Able to execute on that. And if you could also elaborate on in terms of the outlook for capital deployment in the quarters to come?
Thank you.
Yes. So I think the biggest factor, obviously deal activity and deployment was slow coming off of March For the next couple of quarters and so we saw a resumption. I think so, again, given the expansion of the firm, if you look at our secondaries business Now where we have large scale private equity secondaries, real estate secondaries, infrastructure, we're deploying more capital. If you look in private equity, Regular weight corporate private equity, a larger scale fund. Our Asia business is growing.
Our core private equity vehicle grew from $5,000,000,000 to 8 And you can look across the firm and then the expansion in these perpetual vehicles we keep talking about, of course, Leads to the need for greater capital deployment. So I think a big portion of this is just a function of the engines There are many more of them and they're larger, and that's leading to more deployment. I also think we have some sectors we have High conviction around we're spending a lot of time on some of the COVID impacted businesses, travel related, location based entertainment, Hotels, I think, we'll see more activity in some of those areas. And then these big secular themes around Digitalization, life sciences, what's happening in green energy, those areas I think will attract a lot of capital. And we'll continue to invest in Europe and Asia and around the globe.
So this quarter was particularly active because of the large life sciences transaction. But when you looked overall for the year 2020, I think it's $62,000,000,000 was basically the same as it was in 2019. So I think that indicates it's likely that deployment probably grows over time or will grow over time just given the scale of our overall business.
Great. Thank you.
Thank you. Your next question comes from Jerry Hojara from Jefferies. You're live in the call. Please go ahead.
Great, thanks. Maybe one more on the insurance initiative. Clearly, a well documented total addressable market Of material size, but also increasingly more buyers in the market. So perhaps you could speak to the competitive dynamics you saw during the Allstate process Or just even more generally? Thank you.
Well, we're not obviously, we'll not talk about Particular transactions, but I would concede that the space has gotten more competitive over the last few years. I think our advantage is 1, the scale we can do things at and 2, our origination capabilities, I think are pretty unique, and I think give us an advantage in this space for counterparties to want to work with us. So We like where we sit today. But I do think it's important to keep in mind beyond actually just our capabilities, our brand resonates. So if you're an insurance company and you're thinking about putting your liabilities in somebody else's hands, you really want to know who that is.
And so The scale of Blackstone, our reputation as a fiduciary helps us. And so yes, like in all things, there's more competition, But we like our positioning. We think there's an opportunity to really grow here.
Thanks, Doreen.
Okay. Thank you. Your next question comes from the line of Christopher Shutler from William Blair, you're live in the call. Please go ahead.
Thanks. Good morning, everybody. In the strategic partners business, I know you're going to be raising a new fund there. I think last time I checked secondary's Transaction volume across the market was something like 2% or 2.5% of total private equity NAV. Where do you think that Percentage can go over the next handful of years and why?
Well, I think Two things are going to help the secondary's business. The one really importantly is that the denominator is going to grow even if the penetration doesn't grow. I'll come back to that in a moment. But Traction doesn't grow. I'll come back to that in a moment.
But alternatives are growing at high single digits, low double digits across the globe. And by definition, that means there's a bigger addressable market. People change their investment strategies. They're unhappy with managers. They want to get out of certain spaces.
And so if you believe in the alternative sort of megatrend, which we certainly do, secondaries is a powerful way to play it. And then as a percentage, I just think 2% of a market trading is not a sign of a market that has sufficient liquidity. And so I think that will lead to higher percentages. This is a business that's grown for us, I don't know, 8 fold or something since we took it on 5 or 6 years ago. I think it's a business that can continue to grow at a very rapid rate.
Vern Perry and his team have done an outstanding job. The returns have been We said in here that we'll raise our 9th private equity secondaries fund. We talked about moving into The continuation area, we're having success in real estate and infrastructure. I think as alternatives grow, this fund continues to grow. This area of the Firm continues to grow.
And I don't think we're anywhere sort of near the end for secondaries in terms of growth.
Thanks, John. Thanks, Chris.
Thank you. Your next Question comes from the line of Brian Bedell from Deutsche Bank. You're live in the call. Please go ahead.
Great. Thanks very much. Most of my questions have been answered, Very, very comprehensive answers. Maybe just one on the retail side. As you said, John, Yes, you've seen great momentum in that.
Just maybe sort of the outlook over the next 1 to 2 or maybe even 3 years, whether you think that growth can accelerate given your distribution initiatives in the wealth management space and especially the demand For your products on the retail side and if you can sprinkle in comments on sustainable investing in your ESG initiatives, whether you're seeing stronger demand for ESG solutions within your product?
I would just echo my earlier comments that retail remains a very favorable channel for us Given the brand and the range of products now, the movement from beyond just the episodic products, which are obviously Continued to be offered to the highest network people, but the B REITs and B CREDs, their distribution capabilities, The ability to sell those broadly is powerful. And I would just point out, B REIT, it took a number of years Sort of get to lift off momentum, it feels like BCRED in the early days is having more success because we've opened up those channels and we're The number of channels. And so I think as we introduce new products in this area, they can continue to grow and have this success. And this is all part of this sort of growth in perpetual capital, growth ultimately, of course, in fee related earnings And bringing this sort of world class service and investment discipline to individual investors. We think that trend will Certainly continue and we're at the vanguard of that trend.
As it relates to ESG, I think there's opportunity there. I think there is more opportunity. We talk about it internally. I think there's opportunity both institutionally and individual investors. Going back to one of the earlier questions, We just have to make sure we set it up in a lane that is very defined and a separate area where we can deliver for the individual investors and do something separate and different than we do in some of our other funds.
But I think over time, we'll develop some products in that area.
Great. Thank you.
Thank you. And your final question comes from Sumeet Mody from Piper Sandler. Your line is in the call. Please go ahead.
Great. Thanks for taking the questions. I just had a follow-up on the Allstate Life acquisition. It looks like the funds are purchasing about 80% of the life and annuity business, Just leaving about $5,000,000,000 of GAAP reserves in the New York ALNY on the table. Just it seems like they intend to sell that as well.
Just curious Talk about what went into the decision to not acquire that portion of assets as well.
Well, we make decisions about which Fictions and so forth make the most sense for us and we're obviously engaged in discussions with the seller on what maximizes value for them. And in this particular transaction, That's how we landed on this. We ended up buying the vast majority of the assets and that worked for All I would say, I think Tom Wilson, the CEO, has done a terrific job here pivoting his company And getting them focused on higher growth businesses. And this was something that made a lot of sense for us and our investors. So we looked at it as a real win win.
Great. Thank you. Great. Thanks, Sameet.
Thank you. And now I'd like to turn the call back to Weston Cooker for closing remarks.
Thanks everybody for joining us this morning and look forward to following up after the call.
Goodbye. Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.