Hello, everyone, and welcome to the Blackstone 4th Quarter and Full Year 2018 Investor Conference Call. I would like to advise all parties, this conference is being recorded for replay purposes. And now I'd like to hand you over to your host today, Weston Tucker, Head of Investor Relations. Please go ahead, Weston.
Great. Thanks, Sarah, and good morning, and welcome to Blackstone's 4th quarter conference call. Joining today's call are Steve Schwarzman, Chairman and CEO John Gray, President and Chief Operating Officer Tony James, Executive Vice Chairman Michael Chae, Chief Financial Officer and Joan Solitar, Head of Private Wealth Solutions and External Relations. 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. We'll also refer to 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 audiocast is copyrighted material of Blackstone and may not be duplicated without consent.
So a quick recap of
our results. We reported a GAAP net loss of $79,000,000 for the 4th quarter and net income of $3,300,000,000 for the full year. Distributable earnings were $722,000,000 for the quarter or $0.57 per common share and $2.17 per share for the year. We declared a distribution of $0.58 to be paid to holders of record as of February 11 and that includes a $0.10 special distribution announced previously, bringing the total distribution to $2.15 per common share with respect to 2018. So with that, I'll now turn the call over to Steve.
Good morning and thank you for joining our call. As everybody knows, the Q4 was an extremely difficult period for markets and for most participants in the financial community. Risk assets declined sharply across the board, including a 14% decline for the S and P, while volatility spiked. For the full year, for the first time in at least 15 years, every major traditional asset class had negative real returns after adjusting for inflation. Against that background, Blackstone's funds preserved capital in the quarter.
Hard to believe. And for the full year, dramatically outperformed market indices in almost every area. For example, our corporate private equity and real estate funds delivered positive appreciation of 10% to 19% for the year compared to equity indices, which declined anywhere from 4% to 17%. This 14% to 23% outperformance or even more in some cases in 2018 is remarkable compared to index funds or long only managers, as is the preservation of capital in the Q4 overall to the firm. It highlights our ability to intervene in our investments and the enormous advantages of having long term capital.
We are never forced sellers and have over $100,000,000,000 in dry powder capital to take advantage of dislocations whenever they appear. Blackstone's highly differentiated investment performance is why our limited partners continue to entrust us with more and more of their capital to manage. In the midst of the financial hurricane that was the Q4, our growth inflows reached $40,000,000,000 our 2nd best ever. This is a stark contrast to traditional money management where most firms saw net outflows and declining AUM. And these underlying trends are widely expected to continue.
A recent survey of institutional investors found that nearly half are planning to further increase exposure to private market alternatives. Blackstone is today more than ever the reference institution in the alternative space. And we continue to build further on our leadership position, both in our existing businesses and by successfully entering new areas. A few weeks ago, we proudly announced the launch of our dedicated growth equity platform, which will provide capital to companies during the phase between venture funding and traditional. We identified a great leader in John Korngold, a renowned investor in this space.
And like all new businesses at Blackstone, we expect this platform to make our other businesses even better. Another of our new areas, infrastructure, we're extremely pleased to report 2 major positive developments. 1st, our 2nd and most importantly, we signed the Fund's first two deals this week, both involving very large equity checks. The first is a controlling interest in Tallgrass, the owner of an extensive and vital network of U. S.
Midstream assets. And the second is in the transportation sector, which we'll provide further details on when it closes in a few months. Together, these two investments should provide additional momentum for a business we believe will ultimately become infrastructure platforms in the world. In addition to growth equity and infrastructure, we have many other exciting things going on across the firm, including in insurance and life sciences. We'll have more to share with you over coming quarters on these businesses.
The expanding reach of Blackstone's global platform provides more ways for us to find and create value for our LPs. It also provides us great insights from which to learn. Looking at the world today, we remain constructive on the U. S. Economy despite what will be slower growth in 2019 compared to 2018.
Employment trends remain strong. The consumer is healthy and there are no visible signs of a recession, which was the vogue to be talking about in the Q4, which we believe is wrong. Some regions of the world like Europe and China are facing headwinds, including from Brexit and trade issues. Policymakers in those regions are now dealing with the question of how to adjust monetary and fiscal policy to encourage growth. With respect to China and trade, there are a number of complex issues that need to be addressed.
This week, we'll learn more about the state of the negotiations, which are finishing today. I continue to believe that both sides want to see and will work towards a resolution, although there can be no assurance we'll reach 1 and it may well be achieved at the last minute. With respect to Europe and Brexit, the outcome is very difficult to predict. Fortunately, the vast majority of people involved seem to have a genuine desire to avoid a hard Brexit, which is important to achieve a better outcome. In closing, as I look out over the next several years, I envision excellent prospects for the firm and our investors.
We have the confidence of our LPs and the flexibility to navigate any environment. As the firm continues to grow, we'll continue to operate as we always have, focused on generating exceptional long term performance in every one of our fronts. And with that, I'm happy to turn things over to John. Thank you, Steve, and good morning, everyone. Despite a challenging quarter for markets, Blackstone advanced against all aspects of the roadmap we outlined at our Investor significant fundraising, leading to a powerful upswing in the growth and quality of our earnings.
We've now launched the fundraising for 4 flagship strategies with tremendous early success. Our confidence in hitting our targets for those strategies is even greater today than it was in September, despite the market volatility. Gross inflows reached $39,000,000,000 in the quarter and were just over $100,000,000,000 for both 20172018, a pace we expect to exceed in 2019. In real estate as of today, we've closed on $17,300,000,000 for our new global opportunistic fund. This comprises the institutional fundraise for this oversubscribed vehicle and we expect to hit the $20,000,000,000 cap with retail investor closings over the balance of the year.
In Corporate Private Equity, we expect our new fund to exceed $20,000,000,000 in size with the vast majority raised in the first close in the next few months. Along with nearly $10,000,000,000 for each of our opportunistic European Real Estate and PE Secondaries funds, we expect to exceed $60,000,000,000 from these 4 flagship funds collectively largely by the end of the year. This compares to $50,000,000,000 raised in their prior vintage and demand in the market exceeds the capacity limitations we've placed on them. In addition to drawdown funds, our perpetual capital continues to grow with $73,000,000,000 of AUM across 13 funds. This is an important trend in our business, resulting in greater quality and predictability of earnings.
Our Real Estate 5 years, including another $2,500,000,000 of inflows in the 4th quarter. Our non traded REIT, B REIT, has been on average raising more than $250,000,000 per month. Our ability to raise scale capital through turbulent markets speaks to the strength of our LP relationships and the trust we've built with them over decades. The key is to deliver differentiated investment performance, which we did again in the Q4 and full year 2018. The corporate private equity funds had a standout year, appreciating 19%, notwithstanding some reversal in the 4th quarter due to the downdraft in public markets.
Our secondaries business was also up 19% for the full year, while tac ops was up 12%. In real estate, our opportunistic funds appreciated 10% for the year and about 1% in the 4th quarter compared to a 7% decline for the Public REIT Index. Core Plus rose 11% for the year and 2% for the quarter. Our portfolio companies are reporting steady growth, reflective of the healthy operating backdrop that Steve described. We also don't own the market and benefit from not having many companies heavily dependent on global trade.
In real estate, we continue to see particular strength in tech driven office, global logistics, U. S. Rental housing and in India. In our hedge fund solutions business, BAM's BPS composite was up 2% gross for the full year, with the S and P total return index down 4% over the same period, the MSCI World Index down nearly 10% and high yield down 2%. BAM's positive performance is why we continue to see net inflows.
And at GSO, our performing credit strategy finished the year up 9% gross, while distressed credit declined 3%, due primarily to unrealized marks in the quarter on certain publics and upstream energy positions. We continue to feel quite good about our portfolio overall. Despite investor concerns around the leveraged loan market in particular, we haven't seen a deterioration in the credit quality of our holdings and our default rates remain close to 0. Turning to investing, we deployed an active $16,000,000,000 in the quarter $45,000,000,000 for the year. We closed 3 large previously announced investments involving public companies in the quarter, including the former Thomson Reuters Refinitiv business, the Gramercy Industrial REIT and a Spanish Multifamily REIT.
Scale continues to be our competitive advantage and reduced valuations in the public markets could lead to more large privatizations. With pricing for risk assets down meaningfully over the past 6 months, it's a more interesting time to deploy capital globally. Over the past year, we've been speaking regularly about increasing the growth orientation of the firm, including doing more in Asia and adding to our capabilities in areas like life sciences and technology. We stress the importance of these capabilities given the rapid pace technological disruption across the global economy, and we're quite pleased with the progress we've made towards this objective. First, with respect to Asia, we now have 3 dedicated funds in the region, including nearly $10,000,000,000 of opportunistic capital in BREP and BCP, plus our new open ended real estate core plus vehicle in Asia.
Even with slower growth in China, Asia represents 2 thirds of global growth and we expect the region will comprise a greater percentage of our deal flow over time. 2nd, in Life Sciences, we completed the acquisition of Clarus in the quarter and are now expanding the team with a plan to launch the 1st dedicated Blackstone Life Sciences vehicle later this year. And third, as Steve mentioned, we've a new growth equity platform and we're very excited about the prospects for this business. Innovation and growth continue to be hallmarks of our firm. In closing, the firm is in terrific shape by any measure.
We continue to deliver for our LPs across all of our businesses and successfully expand into new ones. Investor confidence in Blackstone has never been higher. At the firm level, this translates into strong growth, more stable fee streams and solid distributions for our shareholders. With that, I'll turn it over to Michael.
Thanks, John. I'll focus my remarks this morning on the key operating and financial highlights from the year as well as the outlook. Total AUM increased 9% year over year to new record levels through the combination of $101,000,000,000 of gross inflows during the year and $14,000,000,000 of market appreciation despite $34,000,000,000 of realizations. Inflows were broad based across the firm, $31,000,000,000 in real estate, dollars 30,000,000,000 in credit, dollars 27,000,000,000 in private equity, and $13,000,000,000 in BAM. These totals were records for real estate as well as BAM.
And as you've heard so far this morning, our extraordinary fundraising momentum continues unabated in 20 19. Excluding the effect of the monetization of our prior direct lending business in the Q2, total AUM was up 14% year over year. Management fee revenue rose 10% to $3,000,000,000 for the year, another firm record with positive growth in every segment. Fee related earnings increased 9% to $1,500,000,000 or $1.21 per share. For the full year, FRE margin expanded nearly 100 basis points to 46.1%, the highest full year level ever and is up more than 400 basis points over the past 3 years.
For the 4th quarter, FRE increased 23% to $433,000,000 On last quarter's call, I discussed some of the variables that can affect quarter over quarter comparisons, including the timing of intra year compensation accruals. As such, it's more meaningful to look at full year trends versus any given quarter. Overall, 2018 represented the firm's most profitable year to date on a fee basis, notwithstanding the direct lending sale, and our trajectory is strong. I'll discuss the outlook more specifically in a moment. Distributable earnings were $722,000,000 for the 4th quarter or $0.57 per share and $2,700,000,000 for the full year.
Although the year over year DE comparisons are skewed by the sale of our European logistics platform at a significant gain in last year's Q4, these are strong results underpinned by record FRE and continued healthy realization activity. And indeed notwithstanding the external market turbulence in the 4th quarter, it was our 3rd straight quarter of total DE in the $700,000,000 plus area. In corporate private equity and real estate, realizations were completed at an aggregate multiple of invested capital of over 2 times, in line with the consistent historical performance of those platforms over the past 30 plus years. Net of the holdback and including the final installment of our previously announced special distribution, the total distribution shareholders was $0.58 per share for the 4th quarter and $2.15 for 2018. At our current share price, this implies a 6.5% annual yield continuing to make us one of the 2 highest yielding stocks of the 150 largest U.
S. Public companies. As announced last week, we've simplified the presentation of our results by highlighting distributable earnings as our primary non GAAP earnings metric. DE fundamentally and simply reflects fee related earnings plus net realizations and focusing on these metrics better aligns the presentation of our financials with how we manage the business. The change is consistent with similar actions taken by our peers, and so far we received uniformly positive feedback from both investors and analysts.
We will continue to convey unrealized earnings accruals through our balance sheet net performance revenue receivable. We ended the year with a receivable of $3,500,000,000 up 5% year over year with positive performance revenues throughout the year more than offsetting the 1,300,000,000 was distributed to shareholders. In other words, the value we created during a highly volatile and negative year for markets more than replenished the firm's store of value while simultaneously delivering another year of strong dividends for shareholders. The receivable declined modestly quarter over quarter from a reduction of $200,000,000 related to unrealized marks, plus $300,000,000 of net realized distributions. Overall, our active deployment pace and appreciation have driven invested performance revenue eligible AUM to a record $210,000,000,000 up 20% over the past 2 years.
At the same time, our dry powder balance has grown to a record $113,000,000,000 and will likely expand even further. Taken together, we are extraordinarily well positioned to build long term value for the firm. Moving to the FRE outlook, as John referenced, in 2019 we are putting in place from a fundraising and fund launch standpoint the platform for the significant step up in FRE in 2020 we highlighted at Investor Day. 3 of the 4 flagship funds, Corporate Private Equity, Global Real Estate and European Real Estate are expected to launch investment periods throughout the course of 2019 early 2020, the exact timing of which depends on the deployment pace of the predecessor funds, and each are then subject to 4 month fee holidays or first closers. Therefore, the bulk of the positive FRE impact from these funds should materialize in 2020.
Our new PE secondaries fund, however, is expected to launch sooner, likely in the next few months and does not have a fee holiday. As for the shape of 2019, the Q1 will be the final quarter of lapping our previous direct lending business. After this, we expect FRE growth more in line with our historical double digit rate for the balance of the year. So overall, in summary, we continue to see a clear path to achieve our targets from Investor Day. Finally, with respect to returning capital to our shareholders.
During the quarter we accelerated our pace of share repurchases buying an additional 8,000,000 shares in the open market. This brings us to 16,000,000 shares repurchased 2018 and a flat share count over this period. Zero dilution to shareholders even while the firm continues to aggressively expand into new areas and sustains a double digit underlying rate of AUM growth. Combined with our regular and special cash distributions, we returned $1,000,000,000 to shareholders with respect to the Q4 alone for the 2nd consecutive quarter and $3,300,000,000 for the year. In closing, as Steve and John conveyed, we entered 2019 with significant momentum and have great optimism for what the firm will achieve in the years ahead.
We are exceptionally well positioned to continue delivering for our LPs and shareholders alike. With that, we thank you for joining the call and would like to open it up now for your
to get back in the queue. We just have a long queue here. Thank you.
Okay. Thank you. You. Your first question comes from Alex Blostein from Goldman Sachs. Please go ahead.
You're live in the call, Alex.
Great. Thank you. Good morning, everybody. First question just around the marks in the Q1. I was hoping you could unpack a little bit of what we saw.
Obviously challenging quarter, but I'm really trying to get a sense of what the public marks were versus the private marks by segment, whether or not you've made any modeling adjustments or any of that kind of growth or discount rates on the private side of things? And obviously, given the fact that we've recouped a lot of the lost ground here in the Q1, I was wondering if you could provide any sort of early read on Q1 marks at least on the public side.
Sure, Alex. This is Michael. I'll take those very good questions maybe in reverse order. First of all, on sort of the January rebound from the Q4 markets, we have experienced that in our portfolio as well. And if you think about the declines in the market values of our public holdings across private equity and real estate in the 4th quarter, we've retraced in aggregate about half, a little over half of that just in the 1st few weeks of January.
Obviously, for individual names, it varies and for some, including 1 or 2 of our biggest positions, we've more than retraced. So you're seeing that overall and you're seeing that with us. I think in terms of the sort of approach to valuations, obviously our methodology and rigorous approach remains very consistent. We have a comprehensive rigorous process, multiple stages of review internally, multiple outside firms provide betting and assurance and so forth. Our private investments are valued based on long term discounted cash flows.
The projection of those cash flows, we obviously update every quarter with our management teams based on the best information, we're grounded in reality, and they also reflect the detailed operating plans that we as control investors are executing for the business or the asset. So as a result, this careful approach and it's been over many years, you really see 2 things. First, in the short term, our valuations don't tend to overshoot on the upside and the downside don't whip around the stock market. 2nd, the proof is in the pudding. The average is as we talked about periodically, the average historical uplift to our prior mark when we've sold a private asset and private equity real estate historically has been in the 20% to 30% plus range.
So the sort of it's not necessarily the intent, but the results of this approach I just described over the long term has been on its face conservatism. In terms of just disaggregating, as you know, we don't precisely disaggregate externally the publics versus privates. John mentioned this for our private equity business for GSO's distressed cluster, which are probably what you're focused on for sure. Our public portfolio and also as John said to some degree our upstream energy portfolio were definitely the biggest headwinds for those portfolios in the Q4, but we feel I just talked about the retracing on the public side overall and we feel good about our energy portfolio as well in both businesses That's evidenced by the long term track record in both businesses in energy and it's evidenced by the success we're having in fundraising in both areas currently.
I might also mention that the EBITDA of our companies continues to grow in the high single digits. So we are accruing value and paying off debt and building long term value for our shareholders.
Great. Thanks for taking the question.
Thank you. And your next question
you hinted at it, but on the kind of the life sciences and growth equity platforms, understanding you closed the acquisition and hired a leader for growth equity. But can you give us a sense on how you're thinking, I mean, usually in the past, you kind of ramp up new businesses reasonably quickly. So how should we think about your current plans for when you think you literally will be out fundraising kind of first strategies in these newer platforms?
Sure. This is John. I would say on life sciences, we've got an existing business in Clarus that's already managing funds today. The fundraising there is really a function of how quickly they deploy their capital and they've had great success. And frankly, since the announcement of affiliating with Blackstone, the deal flow they're seeing has gone up significantly.
And so I think it's reaffirming our instinct, which is this is a large scale market. Traditionally, there hasn't been a lot of private capital for things like Phase III trials. So our I'd say optimism about that business and the prospects for it keeps going up. I said in my remarks, we expect to raise money this year. It's hard to put an exact timeframe because it's a function of how quickly they deploy capital.
But we think there we have an existing team and organization, we're adding to it, we expect to be in the market this year, too soon to say size and so forth. On growth equity, Steve talked about John Korngold, who we're very excited about joining us. He hasn't yet come here. It's hard to start the business just yet. So give us a little bit of time on that one.
But again, the investor response to Blackstone moving into both of these spaces has been extraordinarily positive. What they're hoping to see and I think expect to see is the kind of disciplined investing we bring, downside orientation even in these higher growth areas. And so putting together great teams, merging them with Blackstone people, our process, raising scale capital, I think this resonates quite well with our investors and we have a lot of confidence in both areas. Thank you.
Thank you. And your next question comes from the line of Michael Cyprys, Morgan Stanley. Please go ahead, Michael.
Hey, good morning. Thanks for taking the question. I just wanted to come back on Asia. You guys mentioned that you want to do more there. I'm just hoping you could talk about that a bit more in terms of your goals and aspirations for your business in Asia.
How you see the business expanding? How big part of the franchise could this look in 5 years, what that might look like? And then also maybe touch upon some of the challenges that you face with building out Asia?
Well, look, if you just consider the size of Asia, today I think it's a 3rd of the global economy and as I mentioned, 2 thirds of global growth. And for most investors, particularly in the alternative space, it represents a very small percentage. We think that will grow as those economies grow and they mature. And so raising our 2nd real estate private equity fund in the region was very good news. Raising dedicated capital in private equity itself for the first time in 2018 big, an open ended core fund also significant.
We hired a senior partner in Japan for us in private equity. I was in Asia 2 weeks ago and I would tell you Japan is a market that I think will continue to open up and be more receptive to foreign capital. China, obviously a lot of discussion around the slowdown, but it is still a very large economy growing at, call it, 6 plus percent and we think the investment opportunities in that market will grow. And we've probably been most active as a firm in India, where we've seen really strong demand for office buildings and companies in the tech space, in the BPO area as well. We're seeing tremendous demand there and we've had great returns in India, and that's a market starting off a very low base that now has a much more pro growth oriented government.
So you just look at the aggregate size of people, the economic activity in the region and the limited footprint of alternatives and all of that points to opportunity. And we have I did a town hall with everybody a couple of weeks ago when I was there. We now have 300 people on the ground across 6 different offices. And so for most firms, it's very expensive to set up a business. We've been operating there for some time.
We've got a lot of great people. It's hard to put exact numbers and percentages, but I just think we'll raise more capital in the region. We'll expand our footprint. When you talk about something like growth equity, China is a leader in a lot of that as well. I would expect we'll have some exposure there over time.
I just think in all of our businesses, we'll do more in Asia. It will take time. We'll be disciplined. Obviously, there are challenges in some cases around currency, some emerging markets, rule of law, liquidity. But overall, I think as global investors, you want to have a bigger footprint
And your next question comes from the line of Bill Katz from Citigroup. Please go ahead, Bill.
Okay. Thank you very much for taking the question this morning. So a 2 part question, if I could sneak it in. Michael, just in terms of the sort of the way you sort of see tempo for FRE in 2019 to 2020, wonder if you could overlay maybe the margin outlook against that given what looks to be a particularly strong Q4? And then unrelatedly, one of the biggest questions we get is just sort of the outlook within private credit.
What are you hearing from LPs just given the 4th quarter volatility around appetite for that segment? Thank you.
Sure, Bill. I'll take the first one. On the outlook on margin, I think I mentioned at Investor Day and we talked about it before that if you look over the last kind of decade, almost nearly a decade, on average, we've expanded margins about 100 basis points a year, but it doesn't happen every year and it happens in different quantums. So I think the level we produced for 2018, I think you can consider that basically a good baseline for at least the next 12 months. And obviously, there might be variations along the way.
But I think from your perspective, that's a good way to think about it. I think obviously the margin experience that you saw this year and then over time, it reflects the very good top line growth of our business and I think a good disciplined approach to cost management in a growing business and that results in the operating leverage that we've exhibited.
So on private credit, I would say we continue to see favorable reaction from our investors. You can see it in the inflow numbers. I think investors obviously looked at what happened in the Q4, but the underlying credit factors still look pretty good, particularly here in the U. S. There's been a lot of focus in the media around the leveraged loan market in particular.
And yet when you look at that market, defaults are less than half of historic levels and interest coverage is the highest it's been since the crisis. And that's even with obviously LIBOR moving up, which reflects the strength of revenue and EBITDA growth of companies in the leveraged loan market who are borrowers. And so to us and to our investors, we tend to look at those underlying factors as opposed to the short term volatility and technical flows in markets. And the other thing I would point to is, if you think the U. S.
Economy is not heading into a recession, these businesses will continue to grow their cash flows. So we have a more positive stance on credit in the U. S. And particularly in private markets where you get a very healthy premium. And that's true really in the U.
S. And Europe, and our investors are responding to that. So I know it's a big headline, but again, the facts are still very good on credit. Yes, it's
Tony again. I might mention too that we've got a new line of business, which is private investment grade credit. And we started that up in the last 15 months and we've sourced a lot of proprietary merchandise and we have immense demand for
that. Thank you.
Thank you. And your next question comes from the line of Craig Siegenthaler, Credit Suisse. Please go ahead.
Thanks. Good morning. Just given that we have not had an announcement on the C Corp conversion yet, I'm just wondering if you guys are leaning more towards not converting at this point. And also just given that we had high volatility in 4Q, I'm wondering if that had any impact on the potential decision because it may have overshadowed or even muted the announcement?
Hey Craig, it's Michael. We would not have you or anyone else read into it one way or the other. Our perspective and our message remains consistent. We continue to consider it actively. As we said before, we're not in a rush.
It's a decision you make once. We have not publicly or internally put a timetable on ourselves, a strict timetable. To your last comment, it's also fair to say that the extreme volatility in the public markets in the Q4 didn't lend itself to discerning high quality signals as well. I think that's fair to say. But that maybe goes back to why not having put a strict timetable on ourselves made sense.
Thank you, Michael. Thanks, Craig.
Thank you. And your next question comes from the line of Glenn Schorr from Evercore ISI. Please go ahead, Glenn.
Hi, thanks very much. A follow-up on the credit discussion. I mean, we all saw what how brutal the markets were. But I wonder if you could help put the distressed performance in the right context, what the right benchmark we should be thinking about, what's realized versus just wider spreads in the quarter? And particularly, I heard your overall comments on no deterioration holding default rates close to 0.
But so how much January improved and what we should look for in terms of capital raising in 2019 in credit?
So in distress, particularly there we have some public equity exposure and as we referenced a bit of upstream exposure and obviously there was more volatility in those areas. We still feel good about our distressed portfolio, and we'd be hopeful that as markets calm here a bit, you'll see better performance we'd expect out of our distressed portfolio. Overall, credit, I don't know if we put a number against it. What I will say, in the direct lending area, where we had exited our venture with Franklin Square and received a large payment, we're now rebuilding that business and have pretty good momentum around that. And Michael may be able to put some numbers on that, but I would just say, we have very positive momentum in credit.
We expect to see nice inflows in 2019. And to that point, just
to add on to what John said, great progress on direct lending and we're kind of midstream. We ended the year with about $4,400,000,000 of firepower in that area from our fundraising efforts, both institutional and retail. And we are continuing those into 2019 and would hope to in 2 or 3 quarters time even approach something like $10,000,000,000 of available capital to invest in that area. And we have gone to work on investing in 2018 in the last couple of quarters. We invested or committed just under $2,000,000,000 of capital in that strategy, 17 different deals.
So we have great momentum there. Then elsewhere in credit in terms of the fundraising outlook, we're firing on a lot of cylinders. In addition to direct lending, we continue to fundraise as I briefly alluded to in our energy fund with very good momentum. Our European direct lending fund, we're focused on as well. In our long only area, the CLO market is open again for issuance.
I'm not sure it ever really closed. So across the board, I think we feel very good about the inflow prospects for the GSO and credit area.
All right, excellent. Thank you.
Thank you. Your next question comes from the line of Devin Ryan from JMP Securities. Please go ahead, Devin.
Great. Good morning. Question on infrastructure, great to see some capital starting to be deployed there. And so I wanted to just get an update on the characteristics of the types of investments you're looking at now, what subsectors, What does the size of the pipeline look like? And now that you're starting to put some money to work, how should we think about the pace to fundraising?
Should we think that it will accelerate from where it's been?
Well, we were obviously very pleased to make have signed up 2 very large transactions. And we've been busily working on this business, bringing together an outstanding team under the leadership of Sean Klinczak. We've hired a bunch of great people, moved other talented people from across the firm. We have, I would say, a very active pipeline of deals. These deals are larger and take some longer time to gestate than typical real estate or private equity deals.
And we're having, I think, a very positive response from investors. Particularly, I think we will now as we start to deploy capital, investors see what we're doing. In terms of the types of things we'll be doing, in terms of areas, I would say, you saw a midstream deal. Steve mentioned something
the
we're going to be looking at, have been looking at. The other thing that I think will be the calling card of the business, will be its scale. In today's example, the announcement on Tallgrass is an example of that, that we think our competitive advantage is being able to do very large transactions in this long duration open ended vehicle, which allows us to hold these assets for a long period of time, manage them, invest them, make them very steady, both capital appreciation and income producing assets. And so being a real scale player is something you're going to continue to see from us in infrastructure. And as a result, I don't want to talk about timing, but we've said it consistently here, this will grow to be a very large business at Blackstone.
And the investment discipline and process around this has been excellent, the team is excellent, and it's a very large investable segment, particularly in the U. S, just given the need for capital and infrastructure. So we're feeling quite good about this business and today was a very big day for our infrastructure business.
Absolutely. Appreciate the update.
Thank you. And your next question comes from the line of Patrick Davitt from Autonomous. Please go ahead, Patrick.
Good morning. Thank you. I think this is the first time you've so specifically called out hitting an institutional cap and then filling the rest the fund with retail. Could you kind of update us on that tension? And in particular, wondering how you manage the potential disappointment of those institutional clients that might be left out or get a lower allocation, so you can accommodate retail?
Yes. It's a great question. It's obviously something we spend a lot of time on. Our client relations are critical to the success of our business. It's why we focus on returns.
But you're right, when you have funds that are highly sought after and you have caps, you try to manage that as effectively as possible as early as possible in the process. And that of course has encouraged investors to move more quickly. I think one of the reasons you see these big closes early in Blackstone Funds is investors recognize at times the scarcity issue. We obviously give a preference to existing investors in our funds who are doing re ups, but we also have retail investors who have been consistently investing and are doing so more and more over time. And so yes, in virtually all of our funds what we do, and this has been a historic practice, is really focus on an institutional fundraise and then allocate a portion of capital to retail.
Yes. And I would just add, our promise to our distribution partners is that they are in fact partners and we're not giving them any kind of adverse selection, meaning that we'll only distribute what doesn't sell. That would be a bad outcome.
Next one,
we're ready for next question.
Thank you. And our next question comes from the line of Michael Carrier from Bank of America. Please go ahead, Michael.
Hi, thanks. Good morning. Michael, given the shift from E and I to D, the FRE outlook you provided was helpful. In terms of realizations, can you provide maybe some context if there's anything notable in the near term? And then more importantly, just over the longer term, how should we think about it maybe versus the past based on the level of like the net accrued receivable portfolio age and then rising longer dated products that have more recurring carry at this point?
Sure. Mike, I think in terms of the near term outlook, as we usually do, we enter the quarter with certain private sales under contract. And so that's the case here. In terms of the realization dynamics, when you step back, if you look at our net accrued carry receivable, basically over time, it's obviously lumpy, but on average in those past kind of 4 or 5 years, that amount, obviously not necessarily specific deals, but that amount has generally been realized over about a 2 year time period, plus or minus. So that again could ebb and flow, but that's been actually pretty consistent over time plus or minus sort of a half year.
The age of it right now is not dissimilar from historical, maybe a little bit younger than a few 4 or 5 years ago. And in terms of the long dated capital, there's definitely in terms of our fair market value overall, some shift structurally from opportunistic to longer dated core oriented strategies. Although I'd say in terms of the receivable itself, which obviously reflects the carry value, not the gross fair market value, you have the data and it continues to be the very chunkiest part is from those opportunistic funds. All right. Thanks a lot.
Thank you. And your next question comes from the line of Gerry O'Hara from Jefferies. Please go ahead, Gerry.
Great, thanks. Maybe a different angle on capacity. Obviously, some pretty material funds coming through the pipeline. So perhaps you could discuss all the framework for how you size these strategies, any limitations you might sort of put on it to kind of derive the caps. And I suppose, obviously, a little bit of the confidence that you have in the deployment outlook and I'm kind of looking at the flagship funds at this point.
We get a lot of commentaries you might imagine about just somewhat larger, X percent larger than the predecessor fund, but perhaps something a little bit more granular would be helpful for us. Thank you.
Well, I'd start by saying in private markets, which is very different than public markets, scale is an advantage. So when GE sold its $20,000,000,000 real estate portfolio, our ability to write a single check, very helpful. When Thomson Reuters wants to do a $20,000,000,000 transaction around their data business, our ability to write a single check and having size matters. And that's been the story of this firm for a long time and it continues to be the case today. That being said, if you look at our funds typically, their size is growing.
We said the $50,000,000,000 is going to be at least you know size, markets have actually grown much more than that. So, size. Markets have actually grown much more than that. So we're very disciplined because for us the most important thing is the track record. If we disappoint the investors who give us capital, they're much less likely to give us money going forward.
And so we think size is an advantage. On the other hand, we don't want to raise too much capital, which we can't deploy prudently. Our history has been over 30 years that we've made that call in the right way. And we get this question, I would say, in almost every fund we raise and we've been pretty disciplined. And the growth in AUM of the firm, yes, it's been partially because the traditional funds have grown, but it's been more in the way the business has grown, the movement into core private equity or opportunistic real estate Europe or some of the different products in GSO and BAM and so forth, the movement into tac ops and secondaries, and we see a bunch of different areas where we can continue to expand.
Now we obviously also have these more perpetual capital vehicles. So we have infrastructure, we have the direct lending business and we have this very large and rapidly growing core plus real estate business. Those raise money on a regular quarterly basis and do not have caps, but of course return targets are lower and they have a different liquidity profile. But for our mainline businesses, I'd say a lot of discipline around the size we raise, but also recognizing scale as an advantage.
Thank you.
Okay. Thank you. And your final question comes from the line of Chris Shutler from William Blair. Please go ahead, Chris.
Hi, guys. Good morning. In the hedge fund business, the performance was down in the quarter, not surprising, but I think about 300 basis points above some of the broad hedge fund indices. I know risk control has always been a hallmark of that business, but can you provide a little more detail around the key reasons the outperformance in that area, not just in the quarter, but more broadly over the long term, how much is exposures, how much of it is how
you structure the relationships, etcetera?
Yes. I think the BAAM team has done an outstanding job preserving capital and investing in an uncorrelated way. They recognize their investors are giving us capital there to protect it, but also have it in the liquid format. And their movement away from just traditional longshort equities or event in some of the activist strategies and a little bit more towards, I'll call it, some of the more quantitative strategies and then quite a bit in more structured credit has been a very smart pivot. They've done that now for a number of years, I would say, sort of behind the curtain and the benefit shows up when the tide goes out.
And that's clearly the case for BAAM. And on top of that, of course, they've started to move into these other strategies like the stakes business, which gives them, I think, some additional avenues of growth. So for our investors around the world today who are saying, I'm very nervous, I want to be protected, but I need some of my portfolio in a liquid area, BAM has proven to be an excellent solution. And I'd just add
to that. In December, for example, we were down in our fund to funds about 1% at a time when the markets overall, the stock market was down 9%. So that is a commercial for what we do in terms of protecting capital. And I'd just add to what John said and it picks up on his earlier point about scale. In BAAM as well, scale is a huge advantage.
It gives us 2 things, I think. 1, the best information into what strategies are working, what managers are working and second, access to the best managers for whom we can design obviously make scale allocations which matter to them and often for our clients we can design actually bespoke customized strategies not available widely to investors in those hedge funds. So I would just add those factors to the explanation of our outperformance. And the most advantageous fee structures also comes with scale.
All right.
Thank you.
Thank you. And now I'd like to hand the call back to Weston Tucker for closing comments.
Great. Thanks everyone for joining us today and please reach out after the call with any questions.
Thank you, Weston. That concludes your conference call everyone for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.