Good day, and welcome everyone to the Blackstone Third Quarter 2018 Investor Call. I'd advise all parties, this conference is being recorded for replay purposes. And now I'd like to hand over to Weston Tucker, Head of Investor Relations. Please go ahead. Great.
Thanks, Matthew, and good morning. Welcome to Blackstone's Q3 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 Che, 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 Q report early next month.
Would 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 actual 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 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 of $949,000,000 for the quarter. Economic net income or ENI per share increased 12% year over year 0 point 7 $6 Distributable earnings per common share also increased up 21 percent to 0 point 6 $3 We declared a distribution of $0.64 to be paid to holders of record as of October 29 and that includes a $0.10 special distribution announced previously. With that, I'll turn the call over to Steve.
Good morning and thank you, Weston, and thank you everyone else for joining our call. Blackstone reported excellent results for the Q3, characterized by strong growth in our key financial metrics, as well as industry record assets under management and inflows for the last 12 months. John and Michael will review our results in more detail. But as we highlighted a few weeks ago at our Investor Day in New York, our firm has never been stronger for the outlook more promising. We continue to execute on our mission to be the best in the world at what we do, which is to deliver outstanding returns to our limited partner investors across an ever expanding array of strategies, which also translates to great results for our shareholders.
When we execute on this mission consistently and over long periods of time, our LPs entrust us with more and more of their capital, including $125,000,000,000 of inflows for the past 12 months, driving total AUM up 18% to $457,000,000,000 The market backdrop has become more turbulent recently as everyone knows with risk assets around the world impacted by growing concerns around macro issues. These include rising interest rates in the United States, trade tensions, emerging markets weakness and geopolitical risks in Europe. Taken together, these issues add up to more uncertainty and volatility in an already complex investment environment. However, the U. S.
Economy remains in great shape by nearly any measure. Growth is strong, confidence is high, and there aren't any signs of the excess we saw ahead of the last down cycle. Interest rates are likely to continue moving higher, but if that happens in alignment with better growth, which we believe is likely, that should help offset some of the downward pressure on multiples. On trade, although our companies have modest direct exposure, Progress has been made, including resolution on NAFTA, which has got some new name, USMCA, which we expected, but got done within 2 hours of the deadline. On China, trade issues have now been joined by technological and geopolitical concerns.
As a result, it's likely to take some time to reach agreement on each of these matters. I think it is worthwhile to briefly remind you of the benefits of long term locked up capital in times like these. We are not forced to invest nor are we forced to sell and we do neither unless we have a strong conviction that the asset or company will generate a good return for our investors. We're always looking around the world for interesting investment opportunities and where we can match great talent against those opportunities to build a scale business we go ahead. 1 of these new areas is Blackstone Life Sciences.
We previewed this to you on Investor Day and 2 weeks later, we announced the acquisition of Clarus, a leading life sciences firm to jump start our efforts. Although this business will not initially have a material impact on our financials, it has great potential over time given the rapid advancements in science and innovation occurring in the sector and the current lack of funding and operational resources. We have many other promising new initiatives underway at Blackstone. As we continue to grow, our key differentiators remain our people and our culture, which were on full display at Investor Day. If you attended or watched the replay on blackstone.com, thank you for dedicating a few hours of your time to learn more about our firm.
If you haven't, I highly encourage you to do so. You'll see why at Blackstone we're so optimistic about the future and why I personally believe the best is yet to come. And now I'll turn things over
to John. Thank you, Steve. Good morning, everyone. I couldn't agree more with Steve about the strength of the firm and the collective optimism we share for the future. At Investor Day, we outlined a roadmap for shareholders where robust investment performance builds investor confidence and drives Blackstone's culture of innovation.
This combination accelerates earnings growth and also significantly improves earnings quality. We continue to advance against all aspects of this roadmap. Specifically, investment performance remains quite differentiated. All of our flagship strategies have beaten relevant indices over the last 12 months just as they have over the last 30 plus years. Corporate private equity led the way in Q3 with 7.5% appreciation and over 30% for the last 12 months, while tac ops and our secondaries business appreciated 16% and 19% over the last 12 months respectively.
In real estate, our opportunistic funds were up 3% in the quarter and 14.5% over the last 12 months. That's 4 times ahead of the public REIT index. Core plus real estate was up 2.7% for the quarter and 11% LTM. In GSO and BAM, our flagship performing credit strategy and BPS composite each delivered approximately 2% gross returns for the quarter. For the last 12 months performance for those two areas was 10% and 6% respectively well ahead of relevant indices.
This strong performance continues to drive our fundraising results, including another huge quarter in Q3. We had over $24,000,000,000 in gross inflows for the quarter and a record $125,000,000,000 for the last 12 months as Steve mentioned. Amongst the biggest drivers in the quarter were our latest PE Energy Fund, our new direct lending business and tactical opportunities. BREIT, our non traded REIT is now raising $250,000,000 plus per month reflecting the potential of perpetual capital in the retail channel. We also launched 2 more perpetual vehicles in Q3 bringing our total to 13 with the launch of Real Estate Corp Plus Asia and our credit direct lending strategy.
Total perpetual capital across the firm has grown to $68,000,000,000 Over time, these vehicles should improve earnings predictability given the sticky nature of the capital and the fact that realized incentive fees don't require asset sales. At Investor Day, we described line of sight on $150,000,000,000 of potential inflows. We achieved $24,000,000,000 of those inflows this quarter and 4 major flagship funds, corporate P, P secondaries, global and European opportunistic real estate have all launched fundraising or soon will. These funds were collectively $50,000,000,000 in their last vintage. We expect all will be larger and finish fundraising in 2019.
In fact, we expect the majority of capital for our newest global opportunistic real estate fund will close in the current quarter. As these flagship funds come online along with the maturation of core plus real estate, we expect a meaningful step up in fee related earnings as Michael discussed at Investor Day. Moving to investing, we had another active quarter with nearly $10,000,000,000 of deployment. Major new commitments in the quarter included a midstream a large European bank and the arches underneath the network rail system in the UK. The last 12 months have seen a near record $48,000,000,000 of deployment reflecting the growing scale of our platform.
Post quarter end, we closed on 2 large public transactions, the former Thomson Reuters business, Refinitiv and Gramercy Property Trust representing $3,000,000,000 of fee earning deployed capital. Scale continues to be our calling card. All of this investing plant seeds for future performance revenues. On the harvesting side, we realized approximately $11,000,000,000 for our investors, an active pace reflecting a diverse number of sales across the firm. Combined with solid fee related earnings, this translated to $1,000,000,000 of capital return to shareholders in Q3 alone through dividends and share buybacks.
As Steve noted, recent market volatility highlights the power of our business model.
We can
afford to be patient with the vast majority of our capital in long term or perpetual vehicles with an average remaining duration of 12 years. On the flip side, we can also take advantage of market dislocations with $95,000,000,000 of discretionary dry powder and more to come. One other note, some of you may have seen the announcement on Monday that Steve is making a major personal gift to MIT of $350,000,000 to further the study of artificial intelligence. His goal is to help the U. S.
Maintain competitiveness while also ensuring the study of the human impact of AI, particularly the potential for workforce displacement. We believe this is the single largest investment in computing and AI at any American academic institution. As always, Steve is a visionary looking forward. In closing, the firm is truly firing on all cylinders. We remain 100% committed to generating exceptional returns for our fund investors, which sustains our growth and greatly benefits our shareholders.
With that, I turn things over to Michael.
Thanks, John, and good morning, everyone. The Q3 marked a continuation of the firm's robust momentum highlighted by strong growth in our key operating and financial metrics and substantial capital return to our shareholders. Total revenue rose 11% year over year to $1,800,000,000 while economic net income also increased 11% to $911,000,000 or $0.76 per share driven by strong fund returns and a steadily growing base of AUM. AUM was propelled higher by 18% year over year to new record levels through the combination of $125,000,000,000 of gross inflows and $30,000,000,000 of market appreciation, even net of $44,000,000,000 of realizations over that same time period. Management fee revenue rose 13% year over year to $779,000,000 on higher AUM with growth in every segment, while performance revenue and principal investment income increased 4% on a combined basis to $996,000,000 For the year to date period, which is more informative than a single quarter, total E and I increased 12% to $2,800,000,000 our 2nd best performance ever for the 1st 9 months of the year.
Growth in E and I for both the quarter year to date period was led by private equity. 3rd quarter appreciation of 7.5% was driven by broad based strength across both the public and private portfolios the particular strength in our energy and technology holdings. Performance revenue and economic income for the segment both nearly tripled in the quarter to $533,000,000 $444,000,000 respectively. Across the firm, the funds delivered compelling returns over the past 12 months with all flagship strategies exceeding relevant public market indices as John discussed. This was achieved despite a measure of FX headwinds impacting our real estate area in particular.
Excluding the impact of FX, rep appreciation in the quarter was approximately 4% versus the 3% reported. Additionally, in credit, 3rd quarter returns were affected by a decline in the stock price of GSO's largest public position. Excluding this investment, gross returns for the performing and distressed clusters were 2.5% to 3% in the quarter. And despite the unrealized decline, the investment still represents a highly successful signature deal for GSO, which has generated an attractive realized and unrealized MoIC of approximately 2x our original $650,000,000 basis. In aggregate, despite distributing $1,800,000,000 of net realized performance revenue across the firm, the accrued receivable balance increased nearly $500,000,000 to $4,000,000,000 up 13% year over year to its highest level in over 3 years.
Turning to fee related earnings, 3rd quarter FRE increased 1% year over year to $346,000,000 and for the year to date period increased 5% to over $1,000,000,000 Adjusting for the monetization of our prior direct lending sub advisory business in the 2nd quarter, underlying FRE growth continued at a healthy pace of 10% in the quarter and 13% year to date in line with our historical long term growth rate. Looking forward, John referenced the 4 major flagship funds in our near term pipeline. We expect the fundraising for all 4 to be completed by the end of 2019 and expect to light up those funds through the course of 2019 and into early 2020 subject to the pace of deployment in the predecessor funds. At Investor Day, we spoke about a clear path to a better than 50% increase in FRE in the next 2 years and 75% plus growth in approximately 3 years as compared to the last 12 months. The assumptions around fund sizing and timing that underlie that view remain very much intact.
Moving to realizations and DE. 3rd quarter realizations of $10,700,000,000 included in private equity, Ipreo and the partial monetization of Royal Resources and other energy assets and in real estate, a range of office and other asset sales in the U. S, Europe and Australia. These realizations were completed at an attractive aggregate multiple of 2.4x. For those of you who tuned into Investor Day, you heard me discuss the consistent historical performance of our corporate private equity and real estate platforms, which have both delivered a cumulative 2.2x realized gross moi since inception over 30 plus years.
At 2.4x, our 3rd quarter realizations exceeded those long term averages. These realizations helped drive a 23% year over year increase in distributable earnings in the quarter to $769,000,000 or $0.63 per common share. Net of the 15% holdback and including the 2nd installment of our previously announced special distribution, the total distribution to common shareholders was $0.64 up 45% versus the prior year. This brings the distribution for the last 12 months to $2.42 per share equaling to yield of nearly 7%, which remains the highest of the largest 150 public companies in the United States. In closing, with respect to returning capital to our shareholders, during the quarter we repurchased another 6,000,000 shares in the open market under our repurchase program at an average price of $36.40 Combined with our regular and special cash distribution, we returned a total of $1,000,000,000 to shareholders with respect to the quarter and $2,300,000,000 year to date.
Going forward, we intend to continue to programmatically use our repurchase program to target 0 dilution on an annual organic basis. We remain highly focused on our commitment to driving outsized returns for our shareholders. We believe there are few companies in the world with a growth profile similar to Blackstone that simultaneously sustain such a shareholder friendly approach to returning capital. With that, we thank you for joining the call and would like to open it up now for
questions. Thank And your first question comes from the line of Craig Siegenthaler of Credit Suisse. Please go ahead.
Good morning, Steve, Michael, John.
So starting with Shadow AUM, of the $95,000,000,000 in dry powder, can you provide us the level of Shadow AUM that is not yet earning management fees yet? And then when the fees turn on, what would be the increase in management fees on that shadow AUM base today?
Craig, we'll give you those numbers. In terms of what's not currently earning management fees within our total AUM, Craig, it's about $52,000,000,000 that's on our management fee eligible assets. And I think in terms of the just stepping back broadly, in terms of the uplift, a portion of that obviously will earn fees upon investment and a portion of that will earn fees upon activating the funds. And I think rather than try to quantify that exact subset, it is all part of over the next couple of years the overall uplift in FRE that we've talked quite explicitly about.
And those shadow AUM numbers as we close on these funds before they start will grow?
Correct. We think that dry powder number of $95,000,000,000 and this won't be surprising that over the next several quarters will well exceed $100,000,000,000 by quite a bit.
Got it. Thank you.
Thank you for your question. Your next question is from the line of Glenn Schorr of Evercore ISI. Please go ahead. Hi.
This is Kevin Chung in for Glenn Schorr. We've been increasingly hearing about concerns over the growth of non bank lending space and aggressive risk taking by some players given where we are in the rate cycle and the high levels and then beginning signs of some credit problems. Just want to get your perspective on the commercial lending market and maybe just specific comments on around like direct lending CLOs and BDCs performance going forward? Thanks.
Hi, it's Joan Solator. So I would say importantly, first just to start with Blackstone because we've gotten that question. We looked back at our portfolio from several years ago and across the metrics where you would see those signs. So on leverage, we're actually slightly lower on leverage today than we were then. We looked at percentage of loans with covenants.
It was 75% then, it's 75% today. We've had no degradation in the rate and interest coverage is actually slightly better.
It's all in the context.
And I think it's all direct lending. So the focus that we have, these are middle market companies where frankly the retrenchment of the banks has left them without many alternatives. And I would say our peers who have broad credit platforms are in pretty much the same place. Now where you have had pricing competition and degradation on underwriting has been more in firms where there's a single SMA or they're in this one line of business, all they do is direct lending. And there you have had pricing declines.
But given our brand, the value that we bring, the flow that we're seeing, frankly, we really have not seen that at all.
One thing to remember is with the interest rate so much lower now than they were in the last cycle, The debt service coverage ratios are actually much higher than they were in 'seven and 'eight. So absent a big recession, these credits should be fine.
Thank you for your question. Your next question is from the line of Devin Ryan of JMP Securities. Please go ahead.
Great. Thanks. Good morning. So I guess my question is and I'm getting this question from investors just around kind of the rising tensions with Saudi Arabia. I know it's a developing story, but would love any thoughts around any potential implications on either the infrastructure fund or fundraisings or just anything else you can share with thoughts on that would be appreciated?
Sure. So I would start by noting like everybody, we've been concerned about what we've been reading the last couple of weeks. That said, for us, we take a long term approach both to our relationships and to building businesses. So I would just say as it relates to our investors we have relationships with them, their institutions over decades. And when we look forward, we've made commitments that often are a decade
or longer. And so we think of ourselves as long term Specifically
around infrastructure, what I'd Specifically around infrastructure, what I'd say is, again, we're building for us a long term business here. We obviously started with a large anchor commitment, but just to put some framework around it, what we did was we identified We should build a world class team, which we We should build a world class team, which we've been doing over the last year or so and we put in place some wonderful people, including Sean Klumsak from Blackstone. We've raised a dedicated fund at this point with $5,000,000,000 of capital. We started to identify opportunities and hopefully over the next couple of quarters we'll start to announce those and the plan then is to build this business to scale. Specifically, as it relates to our fundraising and the concerns you raised, yes, in the short term, we may get some questions, But the key thing to remember is our investors know that Blackstone is the sole GP of the capital.
We have 100 percent discretion as to where we invest, when we invest, how we manage the assets, how we sell. And so investors have enormous confidence in us, which is why we feel like this business is very much on the path to growing to large scale regardless of obviously some near term challenges.
Great. Very helpful. Thank you.
Okay. Your next question is from the line of Jerry O'Hara of Jefferies. Please proceed.
Great, thanks. Maybe one on the Life Sciences business. Perhaps you can elaborate a little bit on the recently announced Clarus acquisition, what you found attractive about that particular business and perhaps some color on how you plan to either scale that business or just the segment as a whole? Thank you.
Sure. So I'd start with it's very much consistent with what we've been talking about on the last few calls and in Investor Day, which is a bit of a pivot towards growth at the firm. So we've been talking about Asia where we just closed on 2 new funds in private equity and real estate over time doing more in tacking growth equity. And then here in the life science space, we feel like there's a lot of opportunity over time. Again, a bit like my infrastructure comments, the focus is on where is there a large scale opportunity.
And when you look in the life science area, what we're seeing is there is a very large pipeline of drugs that it costs an awful lot of money and resources to bring them to market, particularly as they get towards the Phase III trials later on in their process. So we said, gosh, wouldn't it be terrific if we had more operating capabilities. So we identified the opportunity. We talked to a lot of people in the space. We found a world class organization in Clarus that has terrific people, expertise and a great track record.
We also at our firm have a lot of expertise ourselves given we've been one of the largest healthcare investors out there and in real estate we're the 2nd largest owner of life science office buildings. So scale opportunity, great people to go after this. And then of course over time build this to be larger. Today they're managing funds of roughly $1,000,000,000 in size. We think over time given the scale of opportunity and talking with our partners at Clarus, they think we think something much larger will be attractive to the market And we think our institutional investors will respond well to this.
But again, we've got to we have to identify an area where we think we can really deliver for investors and do it in our phones and their phones have been ringing. And it speaks to, our phones and their phones have been ringing. And it speaks to a lot of companies out there, particularly large pharmaceutical companies who want to do more, but are a bit constrained either by resources, either capital or the process to bring these drugs to run the clinical trial. So we think this partnership with Claris is very exciting.
Thank you for your question. Your next question is from the line of Mike Carrier of Bank of America Merrill Lynch. Please go ahead.
Good morning. This is Mike Eaton in for Mike Carrier. My question is on your fundraising and the recent strength. This quarter, it shows it continues to be really strong and the AUM targets from Investor Day imply a continuation of your growth rates. How do you think a bear market might impact your fundraising in those targets?
On one hand, it seems like the demand for liquid strategy is really strong and you keep creating new products. But on the other hand, fund sizes did decline after the last recession, and I imagine there might be some rebalancing on the vaults? Thanks.
I think that's a good question. I think if you had a sharp correction in the market, you could see a bit of a slowdown in fundraising. That's a natural response. But I think your earlier points, the most important one, which is performance. And what we've seen over time at the firm is really strong performance means we have the ability to raise capital.
I go back to some of the funds we raised, I think it was our 7th opportunistic real estate fund in 2010, 2011, very difficult time to raise capital and we raised a much larger fund than our previous fund as investors pull back from opportunistic real estate, but allocated a lot to lots given performance. So one of the reasons we highlight on these calls our performance, it was in Steve's comments and mine and Michael's is because that is the essence of the firm. And so I think your confidence that we'll be able to raise capital sort of regardless of environment is a result of the returns we've generated for investors. Of course in long only managers who are facing more pressure. If you don't of course in long only managers who are facing more pressure, if you don't deliver differentiated performance, the money doesn't flow your way.
In our case, in the near term and over the last 30 years, we've done that and we're continuing to see more inflows to Blackstone.
Thank you.
Thank you for your question. Your next question is from the line of Rob Lee of KBW. Please go ahead.
Good morning. This is actually Pell Bermingham on for Rob Lee. I know in the past that you've mentioned how Greater China offers ton of opportunity for Blackstone moving forward. Given what's going on today, how do you see that impacting deal flow?
So we take a long term approach to China. It's the 2nd largest economy in the world. I think it's forecasted at some point over the next decade or 2 to be the largest economy in the world. As a result, it's a place where we should be in our deploying capital. In the near term, what's going on with some of the trade tensions can slow growth there and may make it a little more challenging.
Although I'd point out oftentimes when perceptions are negative that creates interesting investment opportunities. So the stock market there has gone down a fair amount that may create opportunities. You may have seen with us in the U. K. In the last just in this last quarter, we announced a large deal in private equity and one in real estate.
Obviously, we like everybody have concerns around Brexit and yet what we've seen at the same time is a lot of investors pull back. So we are long term believers in China certainly and the current dislocation could create some opportunities, but we're aware that the economy there is slowing down in the near term.
Great. Thank you.
Thank you. Your next question is from the line of Bill Katz of Citi. Please proceed.
Good morning. This is Brian Wu in for Bill Katz. Thank you for taking my question. We noticed a dip in FRE margin this quarter, primarily attributed to base comp and other expenses. I understand that the FRE margin can be lumpy in any quarter, but how much of the expenses of quarter over quarter were attributed to new initiatives versus growth in the base business?
And how should we think about the margin evolving over the next few quarters? Thank
you. Sure. It's Michael. It's a good question. I think you when you mentioned lumpiness, that's right in the short term.
So in terms of the quarter over quarter movement, that's primarily due to what can often happen quarter over quarter intra year, which is slight movements in comp accruals. And so that was probably the biggest factor there. And then as you also mentioned, there was a slight drag from a margin standpoint in terms of the ramping of a number of our initiatives, which obviously will mature and scale in the near term and we think adjust that margin headwind out into something closer to historical levels. So we're in that period where and then the other factor of course is we are still lapping having Franklin Square in the business a year ago and that's a third factor. So I'd say in the next couple of quarters we'll given that we exited the and monetized the Franklin Square business in the Q2 of this year, we'll have a couple more quarters of lapping that comparison.
You'll continue to see ramping of in a positive way of our initiatives. And we think our long term margin trajectory as we talked about in Investor Day will continue to be a very strong one.
Great. Thank you.
Thank you for your question. Your next question is from the line of Alison Taylor Ruediere of Oppenheimer. Please go ahead.
Good morning. We entered a period, I think, where interest rates are top of mind for folks involved in asset classes across the board, and it'd be interesting to hear some of your thoughts about how your real estate business is approaching investment and portfolio management in this rate environment, both in the context of our current strong macro backdrop, but also going forward where there might be some areas of risk and opportunity?
Important question. We've talked about it on the last few calls and the good news here is we've been really focused across all our business units talking about this in our management and operating committee anticipating at some point here rates would turn. So if you look across the business, I think we're you can't be insulated completely, but I think we're about as well positioned as we could be. In our credit area, with GSO, our breads real estate debt area, 75 plus percent of our assets are floating rate. So we actually benefit in a rising rate environment.
In our BAM hedge fund area, we have a lot of significant hedges in place anticipating a higher rate environment, again very helpful to that business. In private equity, 60 plus percent of our debt is fixed rate, anticipating higher rate environment. And our companies are really focused on growing EBITDA and cash flows either through being in good secular sectors or in our ability to add a lot of value. And so that growth I think is very helpful again in the rising rate environment. And then in real estate, we've really been looking at this over time anticipating frankly thought it would happen sooner that rates would go up.
So if you look at our opportunistic portfolio, our largest holdings are not bond like assets. They're faster growing assets. So global logistics, which is our largest position, obviously has very good fundamentals because of what's happening with online sales. We're big exposure to single family housing in the U. S.
And Spain, both areas where you're seeing very strong growth. Life science office buildings in the U. S. Another area I mentioned earlier, strong growth in the Indian office buildings. So a lot of BREIT, our non traded REIT, what you'd see there is multifamily housing, logistics and hotels make up close to 100% of the portfolio, which is different than a typical real estate portfolio today.
So we pivoted more towards growth to help the portfolio, which we definitely think was an important decision we made on behalf of our investors. And then on the flip side, I think this rise in rates of course can cause market corrections and investment opportunities. So the REIT market has pulled back a fair amount. Public equity markets have gone a little bit sideways generally. And so I think with our dry powder, we're well positioned if we do see a pullback here.
Terrific. Thanks very much.
Thank you. Your next question is from the line of Alex Blostein of Goldman Sachs. Please go ahead.
Good morning. This is Ryan Bailey on behalf of Alex. I was just wondering, we've had another strong quarter for private equity returns. I was wondering if you could peel that back a little bit and if you could give us some insight into the health of the portfolio on the private side in terms of revenue growth and EBITDA?
Yes. So we continue to see good signs in terms of obviously the U. S. Economy where the bulk of our assets sit. Revenue growth over the last 12 months call it mid single digits and EBITDA growth high single digits and that's obviously positive for equity values.
We've seen strength in the energy space. Some of our technology oriented businesses are doing well. Generally, we're seeing pretty good things even our European businesses despite slower growth there are performing well. So on the ground the facts feel pretty good. If you said what's the thing our CEOs and we do our quarterly flash report asking our CEOs about what's happening across a range of their businesses.
The 2 big concerns, we focus and all of us do a lot on the tariff discussion, But if you ask our CEOs, the biggest concerns are finding and retaining talent and what's potential risk on the wage side. So that's one. The second area is technological disintermediation. So those are the 2 areas of focus. But generally, the sentiment around what's happening consistent with what you see in consumer sentiment and broader gauges of corporate sentiment, the sentiment in our portfolios is very positive.
Thank you very much. Thank you. Your next question is from the line of Andrew Nicholas of William Blair. Please go ahead.
Hi, guys. Good morning. A quick question for Michael. Just with respect to the $2 FRE target given last month's Investor Day, I was wondering if you could help us think about how much of that comes from performance fees or net performance fees in the permanent capital vehicles?
Sure. And that's obviously out several years. But what I would say is currently and over the near term, the next year or so, that the percentage added to FRE, if you will, by the performance fees, the recurring performance fees and recurring capital are in the mid single digits basically, 5%, 6%, 7%. And then a couple of few years out, it will get up to more like 10% to 15%. And so that's sort of the math around that.
Great. Thank you.
Thank you. Your next question is from the line of Michael Cyprys of Morgan Stanley. Please go ahead. Great.
Thanks and good morning.
Just a question on
the Clarus acquisition on the life sciences side. I guess 2 pronged question. If you look across the industry, M and A has a mixed track record, perhaps kindly described that the Blackstone had a much better track record than perhaps many others. I just as you look across, what others get wrong with M and A? What lessons do you take away with that?
And as you execute on Clarus, what how are you going to execute maybe differently than others as you think about execution risk? And then if you could also talk about the incentive structures that you're putting in place as well to retain key investment talent? Thank you.
So, I would say what we're talking about with Clarus is not necessarily integrations, mergers, those sort of things in a wide range of buying a company that has a wide range of drivers and so forth. What we're talking about specifically their business has been focused on corporate partnerships, where they sit down with pharmaceutical companies and identify drugs that are promising, but don't make maybe the top tier list for that company. But given the right resources to get through the clinical trials and the right amount of capital, that there's a high degree of confidence that this can become a commercially advantageous thing to do. And if you look at the Aclaris track record in this discrete area, they have had tremendous success. So I think this is different than broad based sort of big pharma M and A.
And let me comment on the other acquisitions. I think that we've been very, very disciplined about what we do. And we've done that around a certain few things. Most important, we have to have great people, not average people,
not we're not just filling a
box because we have a spot. We have to have great people. And those people have to be real team players, they have to fit in our culture, they have to want to be part of something bigger and better, they want to benefit from the rest of Blackstone and they want to contribute to the rest of Blackstone.
We don't want sole practitioners.
We don't want people with their elbows out. They've got
to be part of the team. And that and
frankly, finding those two things
and doing it in nice niches has really been the key to our success.
Yes, I would just echo what Tony said, which is for us the ideal acquisition target is relatively small. It gives us key talent, expertise, relationships, but then when you put it into the Blackstone system, you get incredible growth. We saw that clearly with GSO. We've seen that with our secondary business SP. We expect the same thing here.
That's the formula. We don't really want to go out and pay a lot of money for AUM. We'd like to acquire integrate great talent that shares our values and then help them grow at a much faster rate than they did before.
Great. Thank you very much.
Thank you. And our final question is from the line of Mike Carrier of Bank of America Merrill Lynch. Please go ahead.
Hey, thanks for the follow-up. It's Mike Deano again. I just a couple of modeling things to clarify. On the base comp expense, was there any one time item or lumpiness there? It just seemed like a bigger increase.
And then the FX impact in real estate that you guys pointed out, do you have any hedges that would offset that in the other line? Thanks.
On the comp question, it's sort of the same answer as the margin question. On a quarter over quarter basis, there can be fluctuations intra year on comp accruals. And if you look at sort of the year to date, either on margin or comp ratios, they're pretty in line. So I think those will work themselves out over time. In terms of the on the real estate side, John, if you want to handle the CapEx.
Look, we I would say there's first of all, as a firm overall, we've talked about this before, as it relates to euro and to a certain degree pound exposure, based on the euro and pound denominated liabilities we have at the firm level, we actually have a natural financial hedge in place relative to currency fluctuations in euros and pounds at our fund level. And what you saw this quarter in real estate was actually less about the euro, which was obviously pretty stable in the quarter and more about some other currencies, Asian currencies. And it varies by region, but we certainly look at from a debt and interest rate structure standpoint at the deal level hedging that out. At the equity level, as you know, for example, in the case of the euro, we have a euro denominated fund and so investing in Europe. And so that largely effectively acts as a natural hedge as well there.
Hedging your equity in a long term illiquid deal, whether it's private equity or real estate opportunistic, that's a different matter that can be expensive. And so that's I'd say that's a different kettle of fish. But the point is in a number of different ways at the firm level, at the fund level and at the deal level, we deal with currency exposure.
Thank you.
Thank you for your questions, everyone. I'll now turn the call over to Weston
Tucker for the closing remarks.
Great. Thanks, everyone, for joining us this morning and look forward to following up after the call.
Thank you. That concludes your conference call today, everyone. You may now disconnect. Thank you very much indeed for joining.