Ladies and gentlemen, welcome to the 2018 Blackstone Investor Day. At this time, I would like to welcome Weston Tucker to the stage, Head of Investor Relations for Blackstone.
Thank you, and good morning. Welcome to Blackstone's Investor Day. We're happy you could join us today, both here in the room as well as those on the webcast. We have a great mix of attendees in the room here, investors and analysts that know our firm well, as well as brand new interest. So to everyone, thanks for tuning in.
And to our shareholders in particular, thanks for your continued support. Now, before going any further, I have an important responsibility to summarize for you what's on the screen here. And that is that today's presentations include forward looking statements that may differ from actual results materially and we do not undertake any duty to update. Please see our 10 ks Risk Factors for risks that could affect results. Non GAAP reconciliations are available in the full presentation, which can be found on the Shareholders page of our website.
Today's presentations do not constitute an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone Fund. Moving on. So the theme of today's event is Performance and Innovation. It's been 4 years since our last Investor Day. And looking back over that time, the firm has continued to grow and evolve significantly, including into many areas that weren't even on people's radars since 2014.
Over that time, Blackstone has delivered for our shareholders with over $10 per share paid out in distribution since our last Investor Day, helping generate a 50% total return on the stock. But instead of looking back, Blackstone is looking forward. Our goal today is for you to come away with a better understanding of what differentiates the firm and how performance and innovation continue to drive Blackstone forward. We plan to keep today's program to about 4 hours followed by an informal lunch in the room next door. The program is divided into sections.
We'll start with remarks from our Chairman, CEO and Co Founder, Steve Schwarzman our President and COO, John Gray and our Chief Financial Officer, Michael Che. In the second section, we'll hear from our 4 largest business lines: Real Estate, Corporate Private Equity, Credit and Hedge Fund Solutions, each of which has established a leading position in the market and although they've grown a lot, still have a compelling path forward. 3rd section of the day, emerging leaders. These are businesses we built to real scale, but have the potential for transformative growth ahead, including significant potential impact in the firm's earnings profile. And the last presentation of the day will be from our Executive Vice Chairman, Tony James, who will discuss Blackstone's future leaders.
New initiatives, both in terms of businesses and distribution that can help sustain the firm's strong rate of growth for the next decade and beyond. We'll end the day with a Q and A panel and we ask just to keep the day moving if you could please hold your questions until the end.
We have
a great program in store for you today. Thanks again for joining us and I look forward to catching up with you at the lunch. Thanks again. And with that, I'll turn things over to Steve Schwarzman right after a short video.
How do you meet the needs of investors as they seek smarter ways to protect their capital? At Blackstone, we focus on benchmarks through market cycles, replicating success and unlocking growth, making us the leading alternative asset manager and earning the trust of our investors. We turn their trust into innovation, launching new strategies that build on our expertise and bring our networks, data and scale to bear. So we can find opportunities and transform potential into long term value, building lasting leading businesses. Every innovation expands our potential and creates a new advantage, making us smarter decision makers and better partners, turning possibility into performance, innovation into growth.
Ladies and gentlemen, please welcome to the stage Steve Schwarzman, Chairman, CEO and Co Founder of Blackstone.
And a good morning and thanks for being here so early to get a special award. Welcome to Blackstone's Investor Day, our 5th, as Weston mentioned. Since our last Investor Day 4 years ago, Blackstone has grown assets under management by $168,000,000,000 or over 60%. We've expanded our existing businesses into new geographies and new product areas and also added several completely new business lines. Blackstone is constantly innovating, and I think today's terrific lineup of speakers will illustrate that.
I expect that you'll come away from today's presentations with a better understanding of why Blackstone is the clear leader in the alternative asset space and why I personally believe the best is yet to come. The short video we just saw highlighted 2 form the foundation of our firm and our culture. Form the foundation of our firm and our culture. They are the raw materials for the growth we've been able to achieve. And when we do well for our investors in each of our different businesses, they entrust us with more of their capital, including supporting our expansion into new areas in their behalf.
Our model is really very simple. It's a virtuous circle that begins and ends with investment performance. On the overhead screen, you'll see the performance of Blackstone's funds from the inception of our different businesses. From our first private equity fund in 1987, we've delivered returns to our limited partners of 15% per year, net of all fees in Real Estate, 16% annually since 1991, net of all fees. These funds have beaten the relevant public market indices by 7% to 9% on average.
That's 700 basis points to 900 basis points on average with an exceptionally low rate of realized losses. In total, across the firm, we've created approximately $200,000,000,000 of gains since inception for our investors and their beneficiaries. Our performance over 33 years is what sustains us as a firm. Over this long time frame, we've established powerful recognition globally with our LPs, a deep bond of trust and an enduring sense of partnership that is continually reinforced through market cycles. We create a unique proposition for our LPs by offering more investment products than any of our peers.
This makes it easier for large institutions and individuals to invest more under one umbrella, creating certain economies of scale for them and an easier yes to Blackstone. Our firm has become the go to alternative manager for investors around the world, and our share of wallet for these rapidly growing pools of capital is by far the largest. Our extensive array of alternative products, combined with the Blackstone brand, creates a huge moat around our franchise. And that's why we've been able to take $400,000 of start up capital in 1985 and turn it into $439,000,000,000 of assets we manage today. That's a compound rate of growth, for those who care of 52% a year for 33 years.
Of course, we're in the innovation business. Because we have unrivaled access to intellectual capital at the firm due to our broad range of activities in global scale, we are uniquely successful at launching and scaling new businesses. We have an annual strategic planning process, which occurred 2 weeks ago, that challenges each of our businesses to create 1 to 3 new product ideas per year. Our ability to aggregate intellectual capital enables us to better evaluate each of these ideas because we want them to be successful. The firm's decision to move forward with the new business idea is based on 3 principles.
1st, there has to be a substantial opportunity in the market to create something special for our investors and to generate outsized risk adjusted returns. Secondly, we have to identify the right leader. We only attack new initiatives with absolutely first class people, and we do attack them. And third, any new business has to further increase the firm's intellectual capital so that the entire organization is always to become 1 in this space and move the new business rapidly to profitability on a stand alone basis. We're also risk averse and approach every day believing that we're only as good as our last investment decision and our latest fund.
We find it a good long term strategy to not lose our customers' money. This blueprint has guided the firm's evolution since 1985. In 2007, our IPO added jet fuel to this process, ensuring our position as the leading institution in our field with additional financial resources and a new tool to attract and retain the best talent by using our stock. Our IPO and the capital we raised before the financial crisis helped us not only survive but thrive and gave us the opportunity to extend our leadership position in basically every area. At the time of our IPO, we had 4 primary businesses and $88,000,000,000 of AUM.
Corporate Private Equity consisted of 1 actively investing opportunistic fund. Real Estate had 2 opportunistic funds, one focused on North America and the other on Europe. Our credit business was primarily comprised of CLOs and a mezzanine fund, while in hedge funds, we were evolving from co managed products to a greater focus on customized solutions. Fast forward to today, and we've created something unique in virtually every area, adding dozens of new product areas and several altogether new business lines. The firm is 5x larger today than it was at our IPO at a time when most financial institutions were shrinking and more diverse than any of our peers.
Our real estate business is one of the largest private owners of real estate in the world, with negligible realized loss losses on our investment to date since 1991, longer dated core investing and a dedicated Asia fund. Our credit business has exploded with new product offerings and has become one of the largest alternative credit platforms in the world. And our hedge fund solutions business, BAM, is the largest investor in hedge funds in the world. We've also added world class businesses in tactical opportunities, secondaries and infrastructure. And our distribution capabilities have moved far beyond the traditional institutional channel to also encompass the vast and underpenetrated retail and insurance channels.
And as you'll hear today, we have much more that we're going to talk about. In aggregate, Blackstone's global portfolio now consists of 180 companies where we hold, control or meaningful influence with combined enterprise value of over $460,000,000,000 These companies employ approximately 520,000 people around the world, making Blackstone one of the largest U. S.-based employers and one of the largest employers anywhere in the world. We oversee this expansive portfolio with 1100 investment professionals across 15 countries, plus all of our company management teams and operating partners. There are many advantages to this type of scale, but most important is Blackstone's ability to integrate all this information and create real knowledge to share across the firm.
We convert this intellectual capital into conviction around our ideas, ultimately driving better investment decisions. And as Blackstone grows larger, our access to information increases and our returns further benefit. This remarkable knowledge base, our track record and our capability to invest basically anywhere in the world are what give us such great confidence that our LPs will keep entrusting us with more of their capital. 11 years ago, when we went public, few people would have believed we would grow 5x into the teeth of a financial crisis, but that's what we did. In today's presentations, you're going to learn on a granular basis about where we expect the firm to grow in the future.
Just as a reference point, if we grow at a low double digit rate, which is slower than our growth rate of the past several years, we would reach $1,000,000,000,000 of AUM comfortably within the next decade. I think that would be a remarkable achievement for a business that started with $400,000 of capital. Today, the leaders of each of our different businesses will provide a road map for how we can achieve that. Some of our presenters today may be new faces to you, although not new to me and to Blackstone, having worked at the firm in leadership positions for many years. As the firm grows, we often move our senior leaders to run different areas, which at the same time creates opportunities for others to advance in their careers.
This is all part of our careful talent management and succession planning, which at Blackstone has always been seamless and organic, preserving and perpetuating our unique culture. Blackstone's defining characteristic is our culture and our people and reputation are the firm's most important assets. Our professionals are highly talented and motivated. Everyone at Blackstone shares the same core values and embodies our common mission to be the best in the world at what we do on behalf of our investors. You have to love what you do to work at Blackstone and constantly strive to do it better.
Our next presenter, John Gray, exemplifies the firm's values and passion for excellence. We hired John from Wharton in 1992, and he rose to run our real estate business in 2,005 before succeeding Tony James in February this year as the firm's President and Chief Operating Officer. Tony nicely engineered that transition and is now our Executive Vice Chairman, working just as hard, just happens to have a different title. He just got back from running around to Australia and all over Asia. And for somebody who's changed position, it's really sort of seamless.
John is a homegrown talent, like most people at Blackstone, and a true culture carrier of the firm. I couldn't have more confidence in anyone's ability to lead Blackstone for the next 20 years or more. In closing, despite Blackstone's growth, we still feel like the same small firm with the same values. Our principles have not changed: excellence, integrity, teamwork, entrepreneurship and protection of capital. These principles are the same today as they were 3 decades ago.
And as
long as we remain true to them and continue to have excellent performance, Blackstone and its investors and you, our shareholders, will continue to prosper. Thank you for joining us today even though it's early, and I look forward to answering your questions at the end of the day. And with that, I'll turn things over to John.
Ladies and gentlemen, please welcome to the
stage John Gray, President and Chief Operating Officer for Blackstone. Good morning, everybody. Welcome again to Investor Day. It has been 4 plus years since we've gotten together
and a lot
of things have changed at this firm. One thing though has not changed and that is Steve's passion for our firm and his unbelievable faith in our potential, which is why I think it was hard for him to give that opening and not reference the share price one time. So what do I want to talk about this morning? What I want to talk about is why we think this firm is so special and why we're so optimistic about the future. And I want to start by thinking about what makes a truly great company.
What defines a great business? It's fast growing. It's got limited need for capital, so it grows without capital. It's a magnet for talent. It produces high margins despite the fact that it's got great talent.
It's anchored by a recurring revenue base, which gives it protection in a downside environment. It generates significant free cash flow to share with its shareholders. It has loyal customers. It's got a global franchise. And it has a real moat around its business, generally associated with scale.
And really importantly, invaluable brand equity that attracts people and customers and allows it to grow. Of course, I'm going to tell you and argue today that these are the attributes of Blackstone. Let's start with growth. Steve touched on this, but we've grown from $88,000,000,000 to $439,000,000,000 since our IPO. The only thing I'd add to this is that we did that despite sending $260,000,000,000 back to our investors through our closed end funds when we complete the buy it, fix it, sell it mission.
So, tremendous inflows into our company. Now to give you a sense of this, let's look at us relative to our competition. We have tremendous competitors in our space. And yet, we've raised nearly as much money as the 3 largest competitors over the last 5 years. That gives you a sense of the breadth and depth of our firm and the confidence global investors have in Blackstone.
A question may be, is that growth slowing down? And I would tell you the answer to that is no. We've had $120,000,000,000 of inflows in the last 1 year alone, the most in our history. And as you'll hear, when we look forward, we've got the best pipeline in our history as well. So in terms of growth, we think we can check the box.
Now, do we need capital to produce this growth? The answer to that, no. This stat shows you $439,000,000,000 of AUM and just $2,000,000,000 of that comes off our balance sheet. That means there's lots of capital to pay out to shareholders. Somebody may ask, but do you eat your own cooking?
Do you believe in what you do? The answer is yes. Our employees have $6,000,000,000 invested in our funds. But as it relates to shareholders, we don't need to tie up capital in the firm in our investments. Where else do you see that we don't use a lot of capital?
We have more cash than debt, dollars 1,700,000,000 more cash than debt. We have an A plus rating reflecting the strength of this balance sheet. And then you may ask, but do you issue a lot of equity to grow? And the answer to that is no. 0.7% annual growth in our share count since the IPO, and we anticipate that's going to be meaningfully lower going forward as a result of our newly announced buyback program.
Now switching to talent. This is my favorite slide of the day as the newly minted President of Blackstone. 2018 analyst class at Blackstone, Nearly 15,000 applicants to come and work at Blackstone, young kids in their 20s, only 86 of them ended up getting jobs. That's a 0.6% admin rate. That's more that's lower than the most exclusive universities in the world.
And what it says about the firm, 1, is that we have an incredible brand that people want to be associated with this firm. And 2, when you think about the future, the kind of talent that's coming through the doors is incredible. Some of us were joking earlier, thank goodness, Blackstone didn't look like this when we came to get jobs. Now, it's not just about attracting talent. It's about retaining that talent.
Our management committee, 11 of us, average tenure of 18 years. It doesn't mean there aren't things that happen in life and people move on, but it shows that great talent wants to stay at the firm. Of our 147 partners, they've been there on average 10 years. And then my favorite stat on this, today you're going to hear from 5 of us, myself and Ken Kaplan, David Blitzer, Joe Barata, Michael Choe, who all started at the firm in our early 20s, going back to Steve's comment about homegrown talent. Now despite attracting and keeping this great talent, we still have very impressive margins.
A typical S and P 500 company, 13% pre tax margins. I looked at pre tax, because obviously we have a very tax efficient structure. I didn't want the numbers distorted. Blackstone over the last 12 months has a 52% margin. Now the average of the S and P forward or the multiple on 2018 earnings is 18 times.
We have Blackstone today even with a little run up in our stock are trading at 12 times despite powerful statistics like this. Another great factor about this business is the firm is built on stable long duration third party capital. What does that mean? Well, a typical asset manager, the money can leave generally on a monthly basis. In our case, only 10% of our capital can leave within a year.
90% of it is tied up in long duration closed end vehicles or what we call perpetual capital that I'll talk about in a moment. Why does this matter? It matters in tough environments because we can hold on to capital. It doesn't leave us and we have the dry powder to take advantage of things. So today, we have $88,000,000,000 of dry powder.
If markets dislocate, the money doesn't leave, we can deploy that capital. It is a powerful business model. Now I mentioned perpetual capital. This is one of the key takeaways from the day, which is the way our firm is changing. If you went back 5 years ago, we had $9,000,000,000 of this capital.
It's capital with indefinite term with no forced redemptions. Today now, it's grown to $64,000,000,000 Why is it growing so rapidly? This is why. We have 13 vehicles today. We've got an infrastructure fund that had its first close this year of $5,000,000,000 We've got a core plus real estate business that has tremendous growth, 3 open ended institutional funds in the different geographies around the world.
A private REIT here in the U. S. For retail customers that's at $4,000,000,000 today in less than 2 years. Just last month, it raised $300 plus 1,000,000 We have a public mortgage REIT, Blackstone Mortgage Trust, $4,000,000,000 of capital. We've got a $3,500,000,000 GP Stakes business in BAM, a whole series of funds in GSO, and we're rebuilding our BDC.
We had a joint venture. We now control our BDC. We're rebuilding it with better economics. And then insurance, which Tony will touch on later today, another area where we think there's tremendous growth. But this perpetual capital is very important to this firm and how you think about it going forward.
Not surprisingly, a business like this produces a lot of free cash flow. So a few stats on this. We paid out $6.84 in the last 3 years, over $10 since our last Investor Day. That gives us the highest dividend yield of any of the 150 largest companies in the United States. Now interestingly, the other big companies that have dividend yields close to us are in the tobacco business or utilities or telecom sectors, all which face pretty significant headwinds.
We feel obviously different about our business and what's happening in the alternative space. And now we've added this new share buyback program to again not have the organic share count grow going forward. So when you think about this, how have we produced this? What is the foundation of this success? And I'd say, and Steve touched on it, what we'll call the Blackstone Virtuous Circle here.
It starts and really ends with remarkable investment performance. That is the key. You cannot forget that. We must deliver for our limited partners. Nothing else really matters.
We got to do that and operate with integrity as well. When we do that, we build investor confidence. They trust us. We've been doing it now for 30 plus years. And then that confidence gives us the power to innovate, to create new products, to serve them in new ways and continue turning this wheel.
That's what we do. So let's start with investment performance. Steve touched on this, but it's worth reiterating. In opportunistic real estate, since 1991, we produced 16% net returns, more than double the private real estate index here in the U. S, again in the last year, significant outperformance.
Same story in Corporate Private Equity. Since 1987, 15% net versus 9% for the S and P, and even bigger outperformance in the last year. GSO, its flagship mezzanine vehicle, 15% net returns versus 8% for the CS high yield index and amazing outperformance over the last 12 months. And in our hedge fund solutions area, 6% net over 18 years versus 3% in the relevant benchmark. This is the reason why BAM has grown to be so much larger than any of its competitors and again outperformance over the year.
This page is what's driving the inflows you see. What does this result in? One of the nice things financially is those performance revenues, which people often are questioning what about these performance revenues? Well, 99% of our funds with performance revenues paid them out. Yes, there is some uncertainty as to timing.
Markets go down, there's a recession, things may get pushed out. But what we've seen looking backwards is a pretty high degree of certainty about earning this cash flow over time. We think the stock market discounts these revenues too. So what's driven the investment performance? I'm going to give you 6 factors.
The first are people, you'll see them in action today, but it doesn't matter if it's our energy credit team in Houston, our private equity talented and committed individuals. It's our process, our investment committee process. I get the luxury, I would say, of sitting on many of these investment committees, seeing what's happening around the world and the focus on the downside. How do you think about rising U. S.
Wages? How do you think about rising interest rates? What do you think about technological disinterpreting the rigor of it is one of the reasons why we've been so successful. Thirdly, scale. This is critical to our business.
In almost every area, we're the leading player over the next few years. If you want to buy $1,000,000 of stock and I want to buy $1,000,000,000 of stock, you actually have a competitive advantage because I'll move the market. But in private markets, it's the opposite. So if Thomson Reuters wants to do a $20,000,000,000 transaction on their data analytics business or General Electric wants to sell $20,000,000,000 of real estate, we end up in bilateral negotiations 1 on 1 because of the size and complexity of the transaction. That again and again has been a huge competitive advantage.
Next up, integration. We are one global firm. I think that's really important to think about. And one of the powerful things I'd say, there are lots of reasons why that's helpful. But the data we're getting from our companies, from our insights on acquisitions and markets and our ability to share that's critical.
We built a data analytics team today that has 7 people on its way to 10. And we're trying to create something that is a really powerful competitive advantage. 5th, value creation. The myth of private equity or real estate private equity is we buy businesses, we use some leverage, we sort of hope things work out. Exhibit A disproving that would be Hilton Worldwide, the transaction we did in our Private Equity and Real Estate area in October of 2007.
We could not have picked worse timing to do an investment. And yet, we ended up making $14,000,000,000 How did that happen? Well, we brought in a terrific management team. We really accelerated the growth of a sleepy Beverly Hills company. We did everything possible to maximize value in that company.
And that's what we try to do across every investment we make. That's part of the special sauce. That's why you see that outperformance over time. Finally, entrepreneurial spirit. You can see it in Steve and throughout our firm.
This is not a place where we sit around and sort of say, we're really happy with the status quo. We are focused on how we can drive more, do better for our business. And our limited partners recognize this difference. They see
us us as unique in our space. And as
I said, hopefully at some point, the public markets will as well. One of the nice advantages of doing this, of innovating and delivering for our customers is that they want to do more with us. If you went back to Investor Day 4 plus years ago, and you looked at our 25 largest customers, they were invested in 4 Blackstone strategies. Today, short time later, they're invested in 9. They have a good experience in one area.
In GSO Credit, they go to secondaries. They go to BAM or Real Estate, wherever it is, tactical opportunities. This is a very important source of growth for us going forward. So what does this mean? This is a shout out to the graphics department here.
This is what Blackstone Private Equity Real Estate Credit Hedge Fund Solutions, they all started basically with one line of business. And yet, by delivering and then innovating, these businesses have grown to fill in. And this is what we're focused on doing, continuing to build this eco Day. Well, I'm going to start by actually going backwards to the last Investor Day. Back then, we had AUM of $272,000,000,000 it's up 62%.
Our deployment, which leads to more performance revenues, up amazingly 169%. Our FRE, our recurring earnings, fee related earnings up 33% and we think about to take a step function up as Michael will talk about. Our distributable earnings. Fee related plus performance revenues, up 56%. There's only one thing that hasn't really moved much and that's our share price, up 9%.
Now we have paid out more than $10 of dividends, so the total return has been pretty good. But the enterprise is valued at a lower multiple pretty much across the board versus when we met 4 years ago. And you might say, why is that the case? Generally, that's because you think the prospects for our business are getting worse. And that is definitely not what we think with our most recent $50,000,000,000 of capital we think we're going to raise that we have line of sight on closed end, traditional episodic vehicles.
This is why we feel so good going forward. Now you may ask, can you still raise this kind of money? You have a lot, dollars 330,000,000,000 in institutional and $58,000,000 in retail, dollars 47,000,000,000 insurance. Have you tapped out? Are you hitting some ceiling?
The answer to that is a definitive no. Our market penetration is still tiny in each of these markets, significant. So what are we going to talk about today? Well, you're going to get to listen to amazingly talented people I get to work with every day, starting with the heads of our 4 large verticals, then jumping into our emerging leaders in strategic partners, Real Estate Core Plus, TACOPS, retail private wealth, where we're now seeing tremendous growth, but also a real impact on the bottom line. And then Tony, as you heard, will wrap us up talking about future leaders, infrastructure, life sciences, insurance, what may happen in the 401 area, areas that can add more to the firm over time.
So near term, long term, the prospects here are very positive. Finally, what are the key messages I want to leave you with? I'll give you a couple. The first is that we have high visibility into accelerating earnings growth and significantly improving earnings quality. Why do we feel that way?
Well, 1, we have line of sight on these big fundraises in corporate private equity, secondaries, opportunistic real estate. And 2, our core plus real estate business has tremendous momentum. Ken is going to talk about the fact that that business could go from $250,000,000 of revenues today to $1,000,000,000 in the next few years. So we feel very good about the future of the earnings and the mix shift more to this recurring fee related, which we think has the opportunity to re rate this stock. Steve touched on it, but new initiatives driving our AUM to over $1,000,000,000,000 by continuing to execute the way we have.
Our performance for our investors continues unabated. It is the hyper focus of us each and every day. And with that, the innovation, the focus on how we can serve our customers better, create new products for them and deliver for them. And as long as we continue to do both, it should be terrific for our firm, for our limited partners and for our public shareholders. And with that, I'm going to hand it over to our very capable CFO, Michael Che.
Thank you all again for coming out.
Ladies and gentlemen, please welcome to the stage Michael Chay, Chief Financial Officer for Blackstone.
Thank you, John, and good morning, everyone. It's terrific to be with you here today. So, I'm going to take the baton from John in this Blackstone team relay and both reinforce and build on a number of themes you just heard from him and from Steve, and do so with a focus on what it means for the firm and for you from a financial and shareholder value creation point of view. So, let's start with my key messages for all of you today. 1st, that the power of our model drives extraordinary financial performance, both historically and into the future.
2nd, that we expect an acceleration in growth concentrated in the highest quality earnings, as John just said. What do we mean by that? We have high visibility into a powerful near term step up in fee related earnings, which I will talk about. Specifically, we see a clear path to over 50% growth in FRE over the next 2 years and to $2 per share in FRE in the next several years. And we see long term performance revenue momentum driven by growing store of value in the ground and by our 30 year record of sustained investment outperformance.
And our 3rd and final message, we think the upside potential in our stock is substantial and we believe there is a compelling case for a $50 or better stock price in the near term. So, let's turn to the power of our model and our financial performance past and present. I will cover a number of slides in fairly rapid succession. And in doing so, you'll hear me echo some of John's points, but also highlight some key trends and draw out what in our view makes for such a unique and powerful economic machine. So, what are the financial characteristics of this powerful business model?
1st, growth. Our fee earning AUM has grown every year in our history and has essentially doubled every 5 years since our IPO. We are proud of this chart you see here and we would put it up against that of any company out there. Long term locked up capital. As you know and as John mentioned, this is the key to our long term value creation model.
The average remaining contractual life of our locked up capital has lengthened from 8 to 12 years since our last Investor Day. The differentiation versus the traditional asset management model could not be more fundamental. In that same vein, in contrast to traditional asset managers, our pricing has been stable overall. In the years after the crisis, we did hear concerns from some, including some of you, about the threat of industry pricing pressure. I think this picture on the right speaks for itself.
This is not what one would want to see in an echocardiogram, but for an investment business, it is a beautiful sight. Our average base management fee rate remained within a basin as we have rapidly grown and diversified. It speaks to our value proposition and value creation for our clients. As John alluded to, we have a robust margin structure that would be the envy of most businesses in the world. Our FRE margins have expanded 1100 basis points since our IPO and have expanded significantly in every one of our business segments.
We believe not just in growth, but high quality growth and high quality growth have delivered 15% compounded annual growth over the last decade in one of the highest quality earnings streams in Financial Services. And in DE, our average annual distributable earnings has gone from $600,000,000 in the 2008 to 2010 time period to $1,700,000,000 in the 2011 to 2014 period to $3,200,000,000 average annual since 2015, an increase in our earnings power of 5 times over that time period. Finally, our balance sheet and liquidity position provides us with great financial flexibility and strategic freedom. We have ample liquidity, dollars 5,200,000,000 in total cash and treasury assets. We have a very tough years versus 10 years last Investor Day with a 3.3% average cost on fixed rate long dated debt.
Our last four bond issuances over the last few years were executed at an average cost of 1.9 percent. We are proud that we are one of the 2 highest rated asset managers traditional or alternative that not only protects the firm if the environment around us is rougher, but supports the firm to seize opportunities in all weather. So, whether it's seeding new strategies, where we see outsized returns on fairly modest amounts of capital from creating new businesses, our highly selective and historically highly successful approach to the IPO, our recent shareholder purchases and special dividend programs, meaning shareholder value, we feel we are amply resourced and well positioned. So now let's look forward to the future, which we believe is very bright. Let's start with the long view and how about we start with an image, not quite as imaginative or eco friendly an image as John's trees, I admit, but an image to help you visualize what we see.
And what we see is being on a road, on a pretty clear day at a nice speed and on our way to pass mark markers of rising AUM milestones, ultimately to $1,000,000,000,000 and beyond with commensurate elevation in earnings power and earnings quality each step of the way. So with that longer view as the backdrop, let's turn back to the nearer term financial implications and let's break it apart between FRE and performance revenues. So first, FRE. Again, we have clear visibility into a powerful near term step up in FRE. Why do we believe that?
The first key driver is ongoing and near dollar pipeline. Now, from just 5 flagship funds on this list that you see in blue that we and our GP Stakes Fund in BAAM. We anticipate the FRE again just from these 5 funds when they are up and running. At the same time and alongside that, as John discussed, our pipeline includes a significant increase in perpetual capital vehicles, including our array of real estate core plus platforms. And I'd like to spend a moment highlighting the unique power and importance of this capital.
Our perpetual capital strategies will increasingly drive more and more of our revenues and earnings, and that is a very good thing, because these are arguably our highest quality revenues in several key respects. First, the capital effectively has indefinite term with no forced redemptions. It is therefore the stickiest compounding capital with fees paid on NAV as it builds over time. 2nd, for most of those that have them, performance revenues are paid on a recurring basis and a stated contractual timetable. And third, they're paid based on NAV and therefore without having to sell underlying assets.
In other words, the performance revenues are calculated like the NAV based management fees of say a long only or hedge fund vehicle and on a similarly known schedule, only the capital is perpetual and not redeemable and typically invested in stable cash yielding underlying assets. The financial result from Mr. Blackstone, we believe, is stable recurring and predictable earnings of very high quality. By their nature, they align with our conception of FRE as well as elements of the FRE definition of a number of our peers and so we will include perpetual capital net performance revenues in our FRE beginning in the third quarter. As you can see, for the most recent LTM period, that would have increased FRE by 0 point 0 $7 The combination of the fundraising so called super cycle and the growth of core plus real estate drives a dramatic and highly visible step up in FRE in the next 2 to 3 years.
We are targeting 75% plus growth to a recent quarter. Just a couple of years ago, we were asked frequently by many of you when will we reach that sort of magic level of $1 of FRE per share and now we have excellent line of sight on $2 per share. Inside of that, we see a clear path to a better than 50% increase in the next 2 years. With approximately 80% of this increase from those 5 flagship funds currently being raised and the scheduled crystallization of a number of existing investments from recent vintages. So again, high visibility and a bridge to achieve this target that we believe is relatively straightforward.
Now let's turn to performance fees, where we think it comes down to this equation. The growing store of investment value in the ground, plus the consistency of our fund performance demonstrated over our history equals long term performance revenue momentum. You just need to connect 3 dots to understand how and why the store value has grown. 1st, the dramatic expansion in the number of diversity and scale of investment strategies is conveyed here at the bottom of the chart, from 8 in 2008 to 2017 last Investor Day to 33 strategies today. This then drove a dramatic increase in aggregate deployment levels across the firm as you see in the blue bars, from $7,000,000,000 annual investment pace in 2,008 to $18,000,000,000 in 2014 to $49,000,000,000 in the latest 12 months, which in turn has led to a 4x increase in performance revenue eligible value in the ground over the last decade in the same time period.
But most important of all is this slide. The consistency and persistency of Blackstone investment outperformance over our history. Over 30 years and through many realized basis, that's through 3 decades, 6 U. S. Presidents, 3 recessions, 4 bear markets and a surplus of geopolitical turbulence and change.
In aggregate, since inception, we have delivered 2.2x realized gross multiple invested capital or MOIC in our private equity opportunistic funds and 2.2 times MOIC in our real estate opportunistic funds. And if you want to see what happens under stress, if you were to look to our so called late cycle investments, those made in 2,005, 2,006, and 2,007 across Private Equity and Real Estate, they delivered 2.1 times MOIC only with longer hold periods. Let's stay with this point and focus on the most recent 4 year period and the story remains the same. At our last Investor Day, the net accrued unrealized performance revenue balance was $3,500,000,000 marked at 1.6xMOIC. Since then, we have delivered at, you got it, 2.2 times MoIC.
Looking forward, here's some illustrative symmetrical math if past is prologue again. Our current accrued balance is $3,900,000,000 marked at 1.4x unrealized MOIC and at 2.2x realized MOIC 1.4x unrealized MOIC and at 2.2 times realized MOIC, this would imply $10,000,000,000 of future realized net performance revenues just on this existing unrealized portfolio and we started with the longer view of the path we believe we're on. Here is the big picture we see, an acceleration of growth concentrated in the highest quality earnings. We see ourselves on a longer term path to $6 of DE per share and beyond and importantly, see the mix of FRE shifting from 1 third last year to less than half today to eventually
in the
area of firm and a stock with higher earnings, higher quality of earnings, greater resiliency of earnings and greater predictability for you as investors. And as we head down that path in the near term, a highly visible ramp in FRE. And now let's bring it back to value. Simply put, we believe there is no company in the world with a more shareholder friendly approach to returning capital to investors. Our 85 percent distribution policy, dollars 16.49 per share in value distributed since our IPO, helping drive a 140% total return matching the S and P in that timeframe 6% dividend yield, which as John said I know John said that, but I just had to repeat it.
And even further enhanced by our $1,000,000,000 share repurchase program on top of an already highly disciplined historical management of share count dilution. Focus on driving shareholder value, we are actively considering our structure. We continue to be impressed by the response to actions by our peers this year. And as we have said, it's a decision you only make once and we have the benefit of time and various inputs and being able to learn from responses to the actions of others. Key factors we are taking into account include sustained market and stock price response, ex inclusion activity and developments.
We will power and quality should command a higher valuation. How do we think about it? Like many, we think a sum of the parts approach makes sense. So, let's start with FRE. We think a range of 23 times to 26 times after tax FRR and derives from AUM that is substantially locked in by contract for 12 years, an earnings stream that is as high quality as any in financials.
This range of forward multiples is at a discount to the average of high quality financials, which are at 28 times on average. Even with our FRE having grown faster than that group over the long term, 15% versus 10%, with our growth rate accelerating in the future. This multiple range implies a 3.5% after tax cash yield based on our distribution policy, which would rank in the top quartile for the S and P 500 just on our FRE. When you apply this range to the FRE, we think we can meet or exceed in 2 years after tax, you get a range of $41,000,000,000 to $47,000,000,000 or $35 to $39 per share. In other words, we believe FRE alone fairly valued would essentially we believe our $4,000,000,000 net balance sheet should be valued at least at par or $3 per share.
And finally, we apply a DCF approach to our performance related net revenues. Material discount to historical investment performance, at the low end of this range, we utilized approximately a 20% discount to the average gross realized gain we have consistently delivered in our history, as I discussed earlier. 2nd, we do not incorporate future new growth initiatives, which frankly based on our history is not just conservative, it's unrealistic. And finally, we assume a 3% perpetuity growth rate and a 15% discount rate, which we think is appropriate based on the the result is a range of $15,000,000,000 to 18 $1,000,000,000 or $13,000,000 to $15 per share on that DCF. So what's it all worth?
In sum, we believe in the next year or so on a forward basis with visibility that is clear and we expect will become even clearer in short order that our stock deserves to pass into this range of value based on fundamentals returns from here. So, in closing, let me recap and leave you with these key simple messages. The power of Blackstone's model drives extraordinary financial performance. We expect acceleration of growth, concentrated in the highest quality earnings and the potential for outsized shareholder returns is significant. I look forward to your questions and conversation later, and I thank you very much for being with us today.
Ladies and gentlemen, welcome, please, Kathleen McCarthy. We
built Blackstone Real Estate on the foundation of tremendous performance. For nearly 3 decades, our opportunistic rep funds have generated a 16% net IRR with a very simple strategy, buy it, fix it and sell it. We look for good quality assets in good locations, typically at a discount to physical replacement costs. If we're able to buy something in breadth though, something is broken. Sometimes it needs a new leasing strategy or new management, capital expenditure or a new capital structure.
And oftentimes, it means all of the above. Once we've implemented that fix it, our work is done and it's time to sell the asset and return capital to our investors. In 2008, we leveraged our success and real estate expertise to start a debt strategies business. We started in liquid securities and moved into mezzanine debt, where we make loans to collect interest and be paid off. The fact that we understand the real estate and are positioned extremely well in the market means that we can identify attractive risk adjusted opportunities in the public and private markets.
We're very proud that through a variety of market conditions over the last decade, we have continued to be able to generate equity like returns while taking debt like risk. Today, we are a full service solution provider to our borrowers, thanks to BXMT, our publicly traded mortgage REIT. BXMT makes floating rate senior mortgage loans on real estate. When we started, the company had a $40,000,000 equity market cap. Today, it is over $4,000,000,000 BXMT, like our entire debt business, capitalizes on the very strong real estate equity franchise when sourcing, underwriting and financing its transactions.
Most recently, we recognized that we were missing opportunities in stable real estate and gateway markets. Furthermore, our clients were asking us to bring the Blackstone magic to safer assets where they could compound value over long periods of time. My partner, Ken Kaplan, will discuss our Core Plus business in much more detail later this morning. I will just highlight that we have been able to attract over $30,000,000,000 of capital to this strategy in less than 5 years, because we are bringing our expertise with large, complicated transactions and our sophisticated high conviction investment strategy to the core plus real estate space. Today, we manage $119,000,000,000 of capital around the world, across the risk spectrum and in all asset classes.
This gives us perspective and access that others simply don't have. CIOs are captivated by it. It shows every dollar we have ever invested in our REP funds, dollars 78,000,000,000 of capital over 27 years. It demonstrates that in every cycle, in every market condition and anywhere around the world, we are able to produce excellent performance for our limited partners. Steve likes to remind us that rule number 1 is don't lose money.
Our consistent discipline has resulted in almost no realized losses over our history. But great discipline doesn't have to mean no ho returns. 91 has produced a 7% IRR. Our 16% net is more than double that. So more new strategies, it's because we have been able to deliver almost 900 basis points of outperformance relative to their benchmark.
When young people or my relatives ask what I do, I say that our job is to take $1 of capital from our investors and try to send back 2. We have met or exceeded this goal with remarkable consistency over our history that we've sent back over $100,000,000,000 of our capital to our limited partners and $80,000,000,000 in the last 4 years alone. As Michael highlighted, we are most proud of what we accomplished in the zone in the gray box. When other firms struggled to return capital to investors on deals made in 2005, 'six and 'seven, we more than doubled our investors' equity. Great performance allows us to grow and innovate.
If you go back 11 years to the Blackstone IPO, in real estate we managed only $23,000,000,000 of capital and we were essentially a U. S. Opportunistic fund business. Our business today is over 5 times the size and is radically different. We are more global, more diversified and more stable than we ever have been.
25% of our AUM is managed through 5 perpetual capital vehicles. And as Ken will illuminate, Core Plus is a very powerful growth engine. It has an even broader set of fundraising and investment opportunities than our flagship rep funds. We wanted to illustrate how we grow and scale our business efficiently. BREP Global Funds, layered on our Europe and Asia Funds, and then the Breads Business.
In the drawdown funds, new funds pick up where the last one left off and each grow modestly over time. The transformational growth comes through the formation of perpetual capital vehicles. First was BXMT, but now Core Plus. These funds grow in perpetuity with a long term investment horizon, no caps on how much capital we can raise and no capital leaving the system. The power of our model is in a one team approach.
So as we grow our funds and add new strategies, we don't need to add new investment teams. We have generated great performance and built a scalable business by hanging on to what made us special in the first place. We operate 1 globally integrated business. We do things basically the same way we always have, where all investment decisions flow through a single global investment committee process. And we have a high degree of continuity among our leadership team.
Scale is one of our greatest strengths, but it's a multidimensional asset. It's not in 13 offices around the globe. That means we can mobilize teams simultaneously to pursue opportunities wherever they are. It's the envy of the industry. Our global portfolio gives us access to information other people don't have.
And we've built a network of relationships that's unparalleled by doing what we said we were going to do for over 27 years. Of course, our capital is pretty special too. Real Estate Investors are always looking for niche managers. So I just tell them that our niche is our size. I think you speak the word largest 7 or 8 times on this page.
The power of this capital is that it allows us to concentrate on large complicated situations where there is much less competition. You see the power of this team and our information access and our capital in our investment activity. John mentioned it in 20 and in one phone call to us. Currently, it seems like every investor in the world is trying to get their hands on warehouse assets. We were able to tie up 80,000,000 square feet of U.
S. Logistics assets this summer because we were the only group who could give the GPT, Gramercy Property Trust Board speed and certainty of execution on an $8,000,000,000 take private. I think our most underappreciated skill is our ability to value in any environment. John covered Hilton, Biomed is the largest investment in BREP 8 and its best performer. 3 years ago, we had conviction that office assets that cater to life science tenants would outperform the broader office market.
So in signature fashion, we did not buy one asset. We took private a $9,000,000,000 company. Since then, we've concentrated and grown the portfolio in the top 5 research hubs around the world. And we've watched as Life Science rents have grown 2 times as hotel in Las Vegas, we have more than doubled EBITDA by bringing in a world class management team and selectively investing capital. Our team turned a money losing casino, it's possible, into a profitable business.
We built high roller suites on vacant floors and we have created the coolest food and beverage destination in Las Vegas. I love food and when I'm at the Cosmo, it is like a crisis to decide where to eat. Finally, we outperform by concentrating our capital in our best ideas. Today, we are focused on 4 areas that we think will generate the strongest growth. First is logistics.
E commerce is transforming demand for warehouses, and we have bought more than 600,000,000 square feet of warehouses since 2010. Innovation Cities is a very fancy way to describe places like Seattle and San Francisco, Stockholm or Sydney. This is where young, highly educated, often tech or creative minds want to live. And so companies need to be there in order to attract and retain talent. It has a very powerful force on office fundamentals in those markets.
In Rental Housing, we have been able to identify shortfalls between household formation and new supply. We are most attracted to assets where we can improve operations and also invest capital to upgrade units, so that our tenants have a high quality housing experience, but at a more affordable price point than NewBuild has to charge. Finally, global travel demand is powering some late cycle strength in the hospitality market. Business confidence and capital spending means that more business travelers are on the road. And at the same time, the consumer is more mobile and looking to spend on experiences rather than stuff.
This is benefiting Hospitality assets, particularly in the most supply constrained markets like the West Coast of the United States and Hawaii. The questions our investors pose probably match yours. 1st, is it just too late? We still see opportunity. Values certainly feel full in most places and it's not easy to find great deals.
But we feel that economic growth is strong. And when we look at the supply market and debt capital markets, it certainly doesn't feel like 2,007. I'd also remind you that our scale means that we don't have to play on the most crowded fields. The second question is what about rising rates? What does it mean for the existing portfolio and opportunities going forward?
We acknowledge that rising rates should dampen value appreciation in real estate. But to address this, I would just point you back to the 4 themes I just mentioned. We're trying to go into the asset classes and into the geographies that we think are going to produce the greatest growth. That will allow us to position our portfolio to withstand higher rates. Steve and John talked about the virtuous circle.
And here is what it looks like for real estate. For 27 years, we've been powering a virtuous circle, where great performance leads to larger capital commitments from our investors. And it also means big new commitments for our new products. Our scale allows us to deploy capital in a differentiated set of opportunities. And that means better returns and more cash back to our limited partners.
We are 3 decades into this, and we think we are just at the beginning of what the virtuous circle in real estate can produce for Blackstone. Thank you.
Ladies and gentlemen, please welcome Joe Barata, Global Head of Private Equity.
Good morning, everybody. My name is Joe Barata, and I lead our Corporate Private Equity business. I've had the very good fortune to work in this business for 21 years almost, and it's amazing how the business has developed in that time. Today, we manage our Corporate Private Equity business as a single global business. One deal in portfolio operations team, one management structure, one single investment committee.
We have complementary funds in Energy and Asia, as you see in the pie. That is an integrated single business. The core Private Equity fund, which is our long dated fund structure, is invested by the same team that I manage, which reduces internal competition and deal sourcing conflicts and provides our deal teams with an additional powerful weapon, which I'll talk about later. The benefits of this structure are many. It allows us to maintain our investment culture and discipline, which is the most important thing.
In terms of diligence and risk management and mental models for valuation through cycles. It enables us to project our sector expertise, talent network, portfolio operations capability globally. It ensures every investment benefits from our operating platform, our intellectual property. And every investment is held to the same standard. We're able to allocate capital to the best opportunities we see globally.
This structure and the single global fund allows us to do fewer larger scale acquisitions compared to our closest competitors. We can remain selective at scale. We have a large global portfolio, as you see, of high quality businesses across the key sectors of the economy. Our nearly 100 companies employ more this insight into key industries and economic trends that informs our investment decisions. It's a very powerful tool that we have, and we're set up to mine it with our centralized structure.
We're constantly looking for ways to leverage this large portfolio to help inform decisions. Often, it gives us an edge or an angle on new opportunities. And the management structure we have helps facilitate this. The broader Blackstone family also helps us in investment theme development. We've worked in partnership with our Real Estate team and our Tactical Opportunities team on 3 of our most recent investments, giving us insights that we wouldn't have otherwise had and that others in the market certainly didn't have.
The integration of our broad firm makes us better Private Equity investors for sure. This integrated global Private Equity platform has generated net returns to our investors through very many cycles. This is the oldest investment business at the firm and we've managed through much turmoil through the years. We've produced 15.5% net IRRs since inception, taking $67,000,000,000 of invested capital and turning it into $125,000,000,000 and growing as much of this is still in the portfolio, unrealized. Our 2 most recent funds, BCP 6 and BCP 7, are producing returns at or in excess of these historical IRRs.
Our funds have consistently produced, as you've heard several times today, over 2 times the money through many cycles, consistently producing carried interest for the general partner even in previous late cycle funds like BCP V. We have been excellent preservers of capital with only 4% realized losses throughout our history despite investing in often volatile leveraged companies. One part of the cycle rarely persists. One needs multi sector expertise and a global approach. You have to stay nimble to unearth the best investment opportunities through the cycle.
Our significant scale, robust platform and reputation has enabled us to do this consistently. Over the last 5 years, we've seen the bulk of incremental capital that's been allocated to the corporate private equity universe occur in the middle and upper middle markets. There are also many new entrants in that part of the market, family offices, larger firms that have redefined their strategies post the financial crisis. At the large end of the market, where we thrive and we are best positioned, however, we have the same small handful of very high quality disciplined competitors, and those competitors are investing out of funds that are similar in size to the ones they operated a decade ago. We're seeing better, less competitive opportunities at the large end of the market that I define over $1,000,000,000 of committed capital and often at lower creation multiples than what we'd see in the upper middle market, maybe for the first time in my career in Private Equity.
We're particularly well positioned to manufacture bear at the signing of the Thomson Reuters transaction. We have a large origination platform and a reputation as a very good corporate steward, a great governor of assets post acquisition and as a reliable counterparty for sellers of assets and corporate partners. BCP 7, as you see on the right, its capital deployment shows this strategy at work. We've executed a number of the largest deals in the market with the likes of the Thomson Reuters transaction, Paysafe, which was a U. K.
Public company we took private, and TeamHealth. Half our deals in the BCP7 funded required equity accounts over $1,000,000,000 80% of the transactions are primary in nature. This is a big departure from the rest of the market, which is over half secondary transactions, which means private equity firms buying and selling things to each other. And 75% of the deals have been negotiated bilaterally us against the seller without an auction. I talked about our single global team, which enables us to enforce a consistent single standard for our investment decision making.
This is what has enabled us through cycles, thick and thin, to ensure consistent returns. The organizational structure enables us to ensure we're using our intellectual capital, talent network and portfolio operations platform globally and consistently. There's no difference in how we intervene in an Indian investment than in a large scale U. S. Investment.
Each investment we make has to have a specific operating intervention plan to meaningfully improve the earnings and growth trajectory of the business. We believe this is table stakes to continue to produce good returns in today's Private Equity Industry and not everybody has built the capability. We have invested significantly in our capabilities in this area. And as you can see, the investment has paid off. These are some fund statistics.
Over time, we've saved our companies an aggregate of $1,200,000,000 in costs from our Global Group Purchasing Procurement business. And as we get bigger, the benefits to scale are obvious. The more companies, the more we're purchasing, the more effective we are in doing it. And we saved a further $750,000,000 in its procurement group. Our BCP 7 portfolio is in the process of experiencing a nearly 200 basis point margin improvement from our operating intervention plan.
Every investment we make has some sort of angle in this regard. We believe this operating expertise, which we've invested in significantly over the last 15 years, is critical to ensuring we maintain our strong investment performance. This group, we believe, is the best in class in the industry, and it differs from many of our competitors. We don't have a generalist approach. We're not putting ex consultants on boards.
We employ 36 full time Blackstone Professionals and another 35 advisors and sector advisors that are focused on 7 key functional areas that touch every one of our portfolio companies. Leadership and talent recruitment, probably the most important thing we do is ensure we have the best possible executive management at our companies. It's liberating for a business to have an enthusiastic high quality leader. Group purchase across the entire portfolio, which I've mentioned, health care benefit design and procurement across the U. S.
Portfolio, sustainability and energy efficiency deployed globally, making sure we're reducing our power consumption lean manufacturing and Process Transformation, ensuring all of our companies employ the best lean techniques. Enterprise Systems, we buy a lot of public company corporate carve outs. We need to stand up systems. We have experts in this area, marshaling third party resources. And our newest initiatives that I think John mentioned in data science, we're ensuring that our portfolio companies are using the data that they capture and publicly available data sources to drive the operating improvement plans that I mentioned.
So since 2007, this business that I manage has had $32,000,000,000 of capital. We've more than doubled our AUM in what is a mature business, Corporate Private Equity. This doesn't include David Blitzer's Tac Ops business or Verne's Secondary's business or Sean's infrastructure business. This is our sleepy old private equity business that's doubled in the last decade. This growth has been driven by innovation and leveraging our strengths in origination and portfolio operations capabilities, which I mentioned.
The flagship funds AUM, VCP is up $22,000,000,000 as we've been able to increase our investment pace. We've leveraged our very strong energy investing capability to raise dedicated energy, raised a similarly structured dedicated Asia fund, which invests with the main fund. And importantly, we did pioneer we were the first long dated fund structure. We call it core private equity, which creates a more permanent structure to hold the highest quality year fund structure. And we've done this importantly without meaningfully growing our direct headcount.
We have found innovative ways to leverage the in place infrastructure of our Corporate Private Equity business. And we will continue to grow this business where we occupy, I think, unique place at the large end of the market, consistently manufacturing unique investment opportunities for our largest LPs. We're developing a Life Sciences investing capability at scale, which Tony James will talk about later, for Private Equity, that could grow quite significantly, in fact. And we'll continue to ramp up our investment pace in Asia. This has, of course, meaningfully increased our base management fee revenue nearly doubling.
This increase has outpaced significantly the increase in our direct headcount. So we're leveraging the margin structure of this business. The investments we have made in our team, both geographically and sector wise and our portfolio operations capability, has enabled us to meaningfully increase our average annual capital deployment pace, which has doubled in this last fund cycle. We're now investing roughly $6,500,000,000 a year and therefore our annualized potential carry generation has doubled. This is a business that should generate roughly $1,000,000,000 of annualized carry and that ought to grow.
So what do we ask? Is it too late in the cycle? We are in the late cycle. It requires more discipline and selectivity. The operating intervention capability I talked about is essential to continue delivering returns.
The economic context is strong and a future recession will be less severe. So if we do our job right and find great businesses to buy and finance them appropriately, we will weather any storm and compound through a cycle. Is there too much dry powder? Well, I talked about less no more dry powder at the large end of the market, no more competitors at the large end of the market. And we have and the people we compete against are high quality and disciplined.
And really, what drives valuations, I think, across the whole of the market is the stock market, the alternative bid, not how much undrawn private equity capital there is. And our leverage level is too high. We are beginning to see preferred and mezzanine structures and some larger buyouts being employed to eke out more return in a base case. We don't really finance our buyouts that way with higher cost junior capital because we think about our returns in the first instance on an unlevered basis. Leverage does not drive the purchase price we pay.
So we don't need or want to take excessive leverage and expensive junior debt capital to generate returns in our deals. So I think our mental model for valuation prevents us from excessively leveraging our companies. So with that, I'll end. I thank you for your support of our firm, and I hope you share my optimism for the future of our Private Equity business. Thank you.
Ladies and gentlemen, please welcome Dwight Scott, President of GSO. Well, good
morning, everyone. Happy to be here. You're getting ready to notice that there's some consistency in these presentations. You're starting to I became President of GSO mid last year. I have been part of the firm since the very beginning in running our energy business.
So I could not be more thrilled to be involved with Bennett Goodman and the rest of our team in what we believe is the best credit platform in the world. And I hope you will feel that way after this presentation. With over 1 $100,000,000,000 of AUM today, we have grown our portfolio quite rapidly over the last 13 years. Very similar story to Blackstone. We did the transaction with Blackstone in 2008.
So we've been part of the business for 10 years now for a little bit over a decade. We started originally with $4,000,000,000 in an alternative hedge fund. Today, we are the largest CLO manager in the world. And last year, we traded over $40,000,000,000 of leveraged loans in our business. So we have scaled that business tremendously over those years.
Our alternative business, that one hedge business, the market leading energy credit business, our European business is driving our business origination today. And we bought an MLP business that we think is going to grow tremendously over the next few years. So we have seen a lot of growth. That wouldn't happen without an exceptional and cohesive team. We have 3 50 employees worldwide today.
It's our business is run by 24 senior partners, 21 of us who have been with the business since before Blackstone. We did our deal with Blackstone over a decade ago. The continuity has allowed us to grow while doing the one thing that's most important in credit. It may be important in real estate, it is critical in credit, which is we protect our capital from loss. We've kept to our knitting in this regard.
That cohesive cohesive team has allowed us to do that. We've avoided big losses across the portfolio, and that's a key part of our business. As you can see here, these are on our private originated deals. We have less than 1% loss annually, historically. These are in funds that are trying to generate mid teens returns, so a very low loss rate given the return profile we're trying to achieve.
Well, you have a good team, you have a broad platform and that allows you and you have good credit process that allows you to have exceptional returns and we've done that across our platform. We could not be more proud of this. This is the underpinning of our business. Steve referenced it in his presentation. You'll hear it from every single person at Blackstone today.
It drives our business and we know that. It is why our 3rd mezz fund is 3x more than 3x larger than our 1st mezz fund. It's why we can go into the market and raise $5,000,000,000 on our initial energy fund and in 2,005 in the middle of a downturn. That's what this is what allows that to happen. We're fortunate because we've had all this performance, we've had this growth at a time where the institutional market and the retail market is turning its attention to credit, Liquid investments continue to drive higher returns and continue to outperform.
Investment grade returns have been low, pushing capital into non investment grade. Bank disintermediation continues. Capital markets want larger and larger deal sizes leaving the direct lending market to people like us. Our leveraged loan business terrible downturn in 2008, 2009 performed exceptionally well and had low losses. All those things driving capital to our business.
We see no change. We will raise as much we will raise more capital this year than we've ever raised in the history of GSO. So we've built a differentiated business. The next few pages talk about how we believe we differentiate GSO. So scale, you've heard scale.
You're going to continue to hear about scale. In credit, scale is key. We have to be able to have to have the knowledge, we have to have the products, and we have to have the capital to solve problems. We need to be important, for instance, in the CLO markets to get the biggest allocations in the most attractive deals. We have to have the lowest cost of capital, so our CLOs outperform the market.
That's scale. On our origination business, we have to be able to answer the key question in any of our origination discussions, which is, can you make this happen? We have to have the ability to say yes. Not only have to have scale, we have to have the team. We think if we get that call, we're going to win the business more times than not.
On these five deals, by the way, we committed over $3,000,000,000 of aggregate capital to these 5 deals alone, each of which was over $600,000,000 of single transaction. Scale only goes so far though if your reputation is not strong. Our brand, our reputation and our approach to the market are the reason we want to be the partner of choice in credit. We believe once again that allows us to get the call, which allows us to win the deal, which allows us to outperform and put capital to work. Our London team, I talked about that, has done that exceptionally well over time.
You see this middle transaction, this company called Laird, public company, a private equity firm called Advent, was trying to take that company private. We got the call. We had done transactions with Advent and had a good experience. They needed us to commit quickly and they needed to know that we were going to be there and they needed a partner that looked good to the market. All those things worked well, a very attractive transaction for Advent.
And importantly, we will get the next call from Advent. And they will look to us again. So credit is a little different from a lot of the things you're going to hear about today. Credit can be very tactical. In other words, if you sat in on our investment committee, you would hear us talking about things like senior debt versus junior debt, what's the security package, where are all very tactical things.
But to really outperform, you have to find unique opportunities by having thematic investing strategies, and we've done that well. Our energy team has done that over time. We've got a number of transactions there. That has seen tremendous growth within our business. Our liquid credit team did that coming out of the 2,008, 2009 downturn looking at homebuilders.
Homebuilders had been significantly impacted by and the market had turned away from homebuilders. We had a different theme. We believe that the homebuilders were getting better faster than the market saw. We happen to have this partner in our firm that is the biggest and most successful real estate business in the world. If you can call them and them what they're seeing, how much of a strong position does that put you in, in the liquid markets?
We were able to do that, and we made a very our European franchise is really an example of what happens when you invest in your business. We believe that in order for us to continue to make good investments, to continue to grow our business, we have to invest in it. We invested in our European team and business early in our business and it was a tough place for a long time. The European markets were a hard place to do business. On the credit side, the banks were exceptionally aggressive.
Come all of a sudden, the downturn comes, the banks pull out and this investment that we have put into the business is paying off in space today. We are seeing some of the best deals and the largest volume of deals of any part of our business out of our European partners. And you can see here a number of transactions we've done in just the last year and a half. But with scale, with an exceptional brand, with the ability to understand sectors uniquely and with the willingness with the ability to have franchises that are unique in the market, you still get the question from your partner, what else can you do for me? And what we believe we can do uniquely is 5 years ago, we realized that we sat inside of Blackstone and that we have we're in a track record of improving businesses outcomes.
And we wanted to offer that to debt investors. Could we bring that to debt investors? And the answer is we could and we have. It has been a very successful program for us. If you see here that $100,000,000 of cost savings, that's $1,000,000,000 of enterprise value created for our partners.
Not for us. We're debt investors in those companies created for our partners. But what that means is they'll come back to us. It means they'll call us on the next deal. It means we can get a little better pricing, a little better structure, very important.
We get a lot of questions that are similar to the questions. I think these are almost the same questions that Kathleen raised. Are we too late in the cycle? Are rates going to cause credit to trade off? On the one hand, we certainly share that caution.
Like Joe said, it's late in the cycle and credit is a tough place to be sometimes when you have rising rates, a tightening Fed, a late cycle late economic cycle and you have this disruption that's happening in many other parts of the market. And we've reacted to that. So today, less than 5% of our portfolio is invested in traditional high yield fixed income assets. A very small part of what we do today is in that part that is most exposed in our mind to this late cycle risk. Instead, over half of our portfolio is in leverage generally are financing a transaction with fresh equity coming in behind us.
The other parts of our portfolio, our direct lending portfolio in both the U. S. And Europe have similar defensive characteristics, have a very different profile, return profile and are not as exposed to rates. However, on the other hand, we sit around impatiently waiting for exactly what this is worried about. We like disrupted markets.
We have drawdown funds that can take advantage of those disrupted markets. And today, we have over $20,000,000,000 of dry powder to take advantage of a correction. In 2011, when the U. S. Was downgraded, the bond market just high yield spreads gapped out to over 800 basis points.
The U. S. Equity markets fell almost 20 percent in that period of time. In a quarter and a half, we invested $2,500,000,000 in our mezz and distress strategies. Those two strategies, by the way, came into that year with $5,250,000,000 of total available capital.
So we invested over almost half of our total available capital. With $20,000,000,000 of dry powder today, we would get to work if the market gives us that opportunity. I'll finish with a reminder of how we've grown our business. We start at the top with flagship funds. That's a simple process.
We wanted those funds to perform well and to grow fund after fund after fund, and that's what they have done. Our mezz business, our distressed business, they have consistently grown from vintage to vintage. We add our industry and geography focused funds, so Energy Europe. And you can see as they grow into Fund 1 from into Fund 2 from Fund 1, they become effectively flagship strategies for us and move up into that category. And then we add in then we add the leadership we have in our long only business.
So that's adding new funds that are additional strategies in high yield. While we're not allocated now, when that correction comes, we want to be able to allocate more and more capital that CLO securities and numerous other products that support Blackstone's insurance business. Importantly, as John pointed out, a lot of those strategies are permanent capital oriented. So we shift capital away from a CLO business and shift it more and more into permanent capital vehicles. And then last year, we acquired we used the balance sheet to grow.
We acquired the Harvest business as we characteristics that felt very traditional to us, yield oriented, asset value, growth oriented, those things that feel like they're consistent with how we have built our business. In addition, the Harvest team fit our culture quite well. And strangely enough, they started in 2,005 just as GSO had. I'm going to end with one story about the top right box. It's called the new direct lending strategies.
I think this defines GSO today as well as anything we've done. We've been an active and successful participant in the direct lending business for nearly a decade now. We really were one of the leaders in that industry early on. However, as John mentioned, we initially built from that partner to a strategy that was fully controlled by us. That was while we received a payment from the partner for that transition, it was a hard transition to make.
We lost $20,000,000,000 of AUM and management fees related to that. Not many firms can make that aggressive decision in the middle of growing the rest of the business. But what happened is the strength of our overall business allowed us to look forward 3 or 4 years and say, we will have a stronger business. We will control it. It will be permanent capital.
It will be something that we can continue to build for decades decades. So we made a hard decision inside of our business to do that. Just to give you an update on where we are, by the time we get to year end, the second half of this year alone, we will have originated over $2,000,000,000 of product into our new strategy for direct lending. And by the time we finish our fundraise in the summer of 2019, we expect to have over $10,000,000,000 to invest in this strategy. So from a dead start in March to today, we really have started the process of rebuilding that business and it will be a better business in the future.
So with that, I thank you for being here and I hope you see why I'm so excited about GSL.
Please welcome John McCormack, President and CEO of BAM.
Good morning. I'm John McCormack, President and CEO of Blackstone Hedge Fund Solutions or BAM as we like to call it for short. At $77,000,000,000 in assets under management, we are a trusted partner to global institutions around the world. And what you see on the screen here are our 4 main investment platforms. The largest and the one that you're most familiar with is Principal Solutions.
This is where we're building custom portfolios of hedge fund exposures for institutions. The other 3 platforms may be less familiar, direct investing, GP Stakes and Registered Funds. But in aggregate, these 3 newer platforms have been growing at a 30% AUM CAGR for the last 5 years, and they now constitute 30% of BAM's overall AUM. In aggregate, these platforms have higher effective management fees than our traditional Principal Solutions business. They have more stable, longer duration capital and are lengthening the duration of our overall capital base.
And they give us exposure to new client segments and new markets as potential sources of future growth. Most importantly, they are delivering great results for investors. As I go through the presentation, I will point out in each of these 4 platforms why we have deep sources of sustainable competitive advantage that will drive the growth of BAM for the next several years. Principal Solutions, 250,300 basis points per year for the last 18 years. It has done it with lower beta to Equity Markets and with less volatility, resulting in the high quality Sharpe ratio that you see there on the screen.
So we're not just producing higher returns, we're producing higher quality returns for our institutional investors. Net of all fees, we've also outperformed the hedge fund industry as a whole. So what is it about the Principal Solutions business that gives it a sustainable competitive advantage? Well, if you look through the business, 1st of all, 50% of the capacity is closed to new investment. It can't be replicated.
As you see here on the screen, almost 80% of the capacity in Principal Solutions is capacity that we've created for ourselves, where we've partnered with a hedge fund to focus on some particular talent that they have or some particular opportunity set, and we've extracted it, especially for our investors. And then we've used our scale to invest in it at lower fees than anybody else can get. So the ability to extract special exposures and to do it at lower fees, these are sources of sustainable competitive advantage that somebody doing this on a direct basis or with somebody else simply can't replicate. That's why we've seen $7,000,000,000 of gross inflows over the last 12 months into our Principal Solutions business. And that's why as CIOs start to think about diversification in the midst of an equity market bull run, this business will thrive going forward.
Now some of you have commented that effective management fees and principal solutions have declined over the last several years and true. But it's important to understand the context. First of all, our largest investors keep giving us more capital to manage because they like the experience they're having. In fact, 70% from existing investors who are having a terrific experience. 32 of our investors have entrusted us with more than 500,000,000 in size with us.
They have SMAs with tiered fee structure. It's a really high class problem when your biggest investors want you to manage more money for them, and it's a problem we're happy to have. We've also entered new market segments like regulated bank balance sheets and insurance company general accounts, And those tend to have lower fee structures, but again, the ability to open new markets is important. And finally, some investors have expressed a preference for more incentive fee oriented compensation versus fixed management fees. We don't believe when we restructure mandates in this way that we're reducing the earnings power of the business, although it is more performance oriented.
So overall, this modest decline in fees is a sign of a healthy, growing, growing, thriving business that's attracting more capital from its largest investors. And the really great news all have higher effective management fees. And as our business mix shifts in this direction, we're going to see the benefits. Direct having higher effective management fees, having incentive fee structures that give us significant upside. I mentioned lengthening the duration of our capital base.
Direct investing in GP Stakes are also driving longer term capital in our business. About 11% of our capital 5 years ago was in longer duration structures. Today, that number is 17% and we are highly confident that that in the next several years. And by long term, I mean anywhere from 4 years in direct investing to forever in GP Stakes, where we're raising perpetual capital. Our investor base has never been more secure.
Now we need this capital in long duration format to execute on the mandate, but we think the recipe of rapidly growing platforms with higher effective management fees in longer term structures is really constructive for investors at BX. Now you don't get to raise perpetual capital unless you have performed for investors, and that's why capital in our 1st GP Stakes Fund, it's 2 thirds invested. And during that period when most private equity funds would be in what they call the J curve, we have generated an 11% cash yield. Net of all the fees we sent 11% year in and year out of the invested capital back to our investors. That's exactly what they wanted when they entrusted us with this long term capital.
And you can see the momentum in the business as a result of this very strong performance. Now I said I'd touch on sources of competitive advantage. Why should BAM have a competitive advantage in the GP Stakes business? It's because Blackstone is the most credible strategic purchaser of GP Stakes of anyone in this business today. If you're selling a GP stake in a firm that you have carefully crafted over 20 years, you're going to sell a 10% stake.
What matters most to you? It's not extracting the last dollar of value from the 10% you're selling. It's maximizing the value of the 90% you own the day after the transaction. And if that's not your objective, then you're probably not a counterparty for us. But for a middle market private equity firm, think about the power of being able to take all your portfolio companies and tap into the global purchasing organization that Joe talked about a few minutes ago and get the benefit of Blackstone's size and scale.
Think about the opportunity to talk to the Blackstone people in this room about how to institutionalize an alternative investment firm or how to enter new geographies or how to exploit adjacencies, think about which brand you want to be affiliated with. Very often, when we're bidding on private equity stakes at auction, we are winning the auctions without providing the highest bid. That's a sustainable competitive advantage. Our direct investing business is also taking off. You can see here, we've been painstakingly building this business for 7 years and over the last 5 years, we've gone from $3,000,000,000 to $9,000,000,000 of capital.
We have a team of 16 people sourcing direct investments. We're investing in securities, restructuring and hedging them ourselves. Why should Dan be good at this? What's the source of competitive advantage? It's sourcing.
When you are the largest allocator to hedge funds in the world and they're figuring out who to partner with, they come to their largest investor. And when they know we have flexible capital, they realize it's going to help them do what they want to do. If you're not if you don't have capital, over 7 years, we have looked at 1500 potential investments in this space. Our sourcing engine is unmatched. 2 years ago, we started to launch separately managed accounts for our institutional investors in direct investing, and you can see what they've done over this relatively short time period, a 10% annualized return net of all fees.
The platform has done 9%. That's over a period of time when multi strategy hedge funds have annualized at only 4%. This business has terrific momentum based on terrific performance. Individuals increasingly want the same great risk adjusted returns that we have generated for institutions. We've gone from almost nothing in daily liquidity registered vehicles 5 years ago to $10,000,000,000 today.
But the trick here isn't raising capital. The trick here is generating performance. Why are we advantaged in doing that? Because of our experience in working with managers to extract different value propositions, We have the ability to take their 3C7 exposures and to outperform others by translating them into liquid solutions. I'm really pleased to report that of our 10 largest institutional relationships and principal solutions, 6 of those hedge fund managers have created liquid solutions for us in our registered funds business.
It's still very early days in this business, and we are putting significant manufacturing resources behind creating even better exposures for our retail investors. I already talked about what differentiates us in each business, but let me just step back and tell you how I think about this. 14 years ago, when I joined BAM, the big banks all had prop desks, special situations groups, and they were terrific because they saw everything. Everybody traded with them. They had the ability to create solutions for their corporate and government clients, they were in a privileged position.
With regulation today, most of them are out of those businesses. And most of that dynamism and most of that creativity in public markets has moved into hedge funds. And I would submit that we sit in an analogous position today. We're the largest investor in that space. We are a counterparty to all of these hedge funds and we are seeing the information flow, and we are seeing the opportunities.
Again, it's early days, but our mission is to maximize the potential of our privileged position in the industry. I've talked about the benefits of scale and the benefits of working with my partners at Blackstone. As we become more direct, we find that some of the opportunities that our friends across the hall are seeing in their businesses are appropriate for our business. In direct investing, we have co underwritten and co invested in 10 different trades with the rest of the Blackstone Group. And our global purchasing operation and our know how is a huge advantage in GP Stakes.
Finally, innovation. Most people don't fully understand innovation. They think it's all about the creativity and the entrepreneurial culture inside your 4 walls. And that's table stakes, you have to have that to innovate. But it's also about a supportive value chain.
We're so fortunate to have 68% of our largest investors who've invested with us in more than one platform. They trust us, they support our innovation and we couldn't do it without their capital and their trust. 58 hedge fund and other alternatives managers have partnered with us in these new platforms to create solutions. This supportive value chain is very difficult to replicate and it has to be built up over years of trusted partnerships. We're 3 times larger than we were 10 years ago, but BAM's best days are ahead of it.
We have a moat around our Principal Solutions business and we have 3 rapidly growing platforms with more attractive economics and sustainable competitive moats. I talked about the evolution of these businesses. Let me just touch on the 2 on the bottom. In direct investing, sometimes you find a great trade, and that's terrific. You put it on and you make money.
Sometimes you find a repeatable trade. It comes more than once. And sometimes those repeatable trades are actually long term platforms and potential new businesses. We're working on some very interesting things in direct investing that will take some time, but we will exploit more adjacencies in this area. In registered funds, liquid capital will propel us into new markets.
I hope I've already addressed most of your questions. In a hedge fund industry that's had some headwinds, we're manufacturing differentiated capacity and using our scale to differentiate ourselves. And we have 3 terrific growth platforms in addition to Principal Solutions. We're expanding into adjacent activities and we're penetrating new client segments. Most importantly, we are generating great performance for LPs through customer centric innovation.
That's what we're all about. Thank you very much.
Ladies and gentlemen, we will now take a brief break and reconvene promptly at 10:15. Thank you.
Strategic Partners was acquired by Blackstone in 2013. And with all of the help, the resources and relationships that Blackstone has, we really grew our business tremendously. Before Blackstone, we executed a deal on average one every 6 days. In 2017, we closed a deal every 3 calendar days. It's unheard of.
It's unparalleled. As we grew grew the business, we saw opportunities in other asset classes mainly real estate and real assets and we expanded into those sectors well. We're in 3,300 plus funds across 1200 different GPs. No one else looks like this.
Since 2,005, our business has grown from around $5,000,000,000 of assets to over $100,000,000,000 of assets today. We're one of the market leaders in the non investment grade credit market and we're across the board in that business. So not only are we very large in the CLO business, we're also one of the largest mezz lenders in the market today. We're one of the largest distressed investors in the market today. What we in fact have done is scaled to larger and larger and different strategies and stayed in our core focus, which is corporate credit for non investment grade companies.
One of the benefits of our large portfolio of funds is we can be a problem solver for our clients. When they have a need, we can find a source of capital to solve that problem. That's been a
big part of our growth.
In logistics, we a sector that was being transformed by e commerce. We just took a view earlier than others that demand for logistics was a lot stronger than what other people saw. And we saw opportunities to move in quickly to large transactions. We're one of the largest owners of logistics in the United States, Europe and in Asia for the last decade. Our scale is really unique.
It's our greatest differentiator. The ability to operate on a global basis to share ideas across markets and to buy 600,000,000 square feet of logistics, which is our highest conviction theme, is really unique and powerful
for us and our investors. India is all about the micro. That's where the profits are made. It's not the macro. In 2011, we identified 5 sectors where we have the domain expertise, the idea being big themes, big dollars.
We are the largest owner of commercial real estate in India. And in private equity, we are a large owner of corporate assets. Combined, we are the largest firm in India. The idea is to bring the global Blackstone wisdom Indian Enterprises. We act like 1 Blackstone, 1 integrated global enterprise.
It does not matter whether a business is in California, in New York, in London, Shanghai or Mumbai. It is the same investment committee process. It's the same due diligence figure. It's the same process across the globe.
Please welcome Vern Perry, Global Co Head, Strategic Partners.
Good morning. Today, I have the
pleasure of presenting the overview of Strategic Partners, which is Blackstone's secondaries business, which was acquired in August of 2013. Now while I'm the newest hire that you'll hear from today, I've been with Strategic Partners since inception in 2000. Strategic Partners is by far the most active, most experienced secondaries manager in the world, having completed over 1100 transactions since 2000. That's over 2x our closest competitor in terms of deals closed. We close a deal on average every 4 days.
It's unheard of in Private Equity. It's unheard of in secondaries as well. We have a portfolio of over 1200 distinct GP relationships and we own LP interest in over 3,400 distinct private equity funds. 3,400. If you think about the database that we have, if you think about the insights that we have on the market in general, it's unique.
But above all, it's powerful. In addition to our database, those 3,400 funds that we own, there are roughly 800 to 1000 funds that we don't yet own. It's interesting about our business. You learn a lot from the deals you do. You learn a lot from the deals you don't do.
We have a team of 61 professionals globally. If you look at our investment committee, we've been with the team on average 16 years. Today, we manage $22,000,000,000 across private equity, real assets and real estate secondaries. We also have a Primary Advisory business and we do co investments. Since inception, we've generated 17% net IRRs.
We did that by acquiring $25,000,000,000 of exposure on the secondary market. And what may surprise you is, we did that with an average deal size of $23,000,000 That's quite small. What will shock you though is that our median deal size is $4,000,000 Most of our competitors, in fact, the ones that are close to our size, the larger competitors won't return your call if you have a $23,000,000 deal and certainly not a $4,000,000 deal. We can do the largest deals. In fact, we hold the record for the largest secondary ever completed.
And I would argue that we probably hold the record for the smallest ever completed. We can do everything in between. We can do deals from $1,000,000 to $3,000,000,000 But we tend to focus on smaller deals. Why? It's less competitive.
It's less efficient. And by the way, our competitors that are large, they don't avoid small deals because they don't like them or they can't make money. They avoid them because they simply cannot do them. They don't have the resources, the bandwidth or the intel to get those deals done. We do.
I mentioned earlier that we do a deal every 4 days. In 2017, we closed a deal on average every 3 days. If you look from 2000 to now, the velocity of our deal closings has actually increased. And it's everyone's working hard. When we joined, we figured we better pick up the pace.
And so we did that last year, a deal every 3 years or every 3 days. So we're quite busy and we're in the market constantly and we know it's trading. So what is it and what are the advantages of secondaries? We present this chart. And what we did here is simply is compare the secondary market to the primary market.
And I'll go across a couple of stats. First, asset acquired. On a secondary basis, we're typically buying identified pools on average 85% funded or above. As you know, in the primary market, it's all blind pool. We want to do fundamental bottoms up analysis on everything that we're buying.
We want to craft our own portfolios. And with all due respect to some really smart GPs, we don't have to. We have a database literally of 15,000 plus unique companies. We can do our own analysis. Next, year of acquisition on a primary basis is at inception.
For us, it's typically years 4 through 10. The sweet spot is years 7 through 10. Why is that important? It reduces risk. By the time we buy into our portfolio, the winners have revealed themselves.
More importantly, the losers have revealed themselves. Now, while I joined in August of 2013, before our entire team joined, we all knew Steve's rule, you don't lose money. And so one of the ways we avoid that is by avoiding losers. And so typically within the 1st 3 or 4 years, losers reveal themselves. We buy in at a discount for the winners.
We avoid the losers. We price them to 0. We're looking to generate asymmetric returns. Cost base that is on average 6 to 12 months old. There's a huge arbitrage there and the knowledge that we have is powerful.
Return of capital. Typically for primary investment is 5 through 10. For secondary investments, years 0 through 6 is where you get most of your capital. If you look at strategic partners, all of our funds start making distributions from the Q3 of operations and many from the Q1 of operations. Literally, we start a full fund and in that quarter we send back a distribution.
And finally, we're highly diversified. This market is growing. These bars represent primary dollars committed to private equity funds from 2,001 to 2017. The red line along the bottom represents the dollar value of between 2,000 and 1 2017, the dollar volume of secondary deals executed increased 30 fold. It's not just strong growth, it's exponential growth.
It's 3,000 percent. And so if you look at that, just 2017 year over year growth in the market in terms of deals executed was 57%. That's good. But I think what's most telling on this page is the top right, 2.5% turnover or what we call a penetration rate. What that means is if you look at all unrealized private equity dollars and funds unrealized that trade on the secondary market in any given year, today it's 2.5%.
Back in 2,001, it was 1 half of tennis tiny. It's really small. There's tremendous amount of room for growth. Where it ultimately goes, unclear. What's very clear is that it's going up.
So we feel very good about the opportunity for this market to grow. But this isn't the only reason. Let's look at another reason why this market will likely grow and should grow. This is a statistic that most people have not focused on. But if you look at the active limited partners making commitments to private equity funds, it's increased 300% since 2,008.
So if you're a private equity manager, I feel really good about this. This bodes well. New entrants, the existing entrants are increasing their dollars, their dollar investments. So again, if you're a GP in a private equity fund, I'd feel really good about this. I'd really feel good if I'm a high quality, strong performing GP.
And as a secondary manager, we feel good because if you look at those new interests, if you look at the 7,063 unique active limited partners in this market, some of them and a fair amount of them will access the secondary market to sell what's otherwise an illiquid long term asset class. So that gives us lots of optimism for growth in the future. That begs the question, why would someone sell anything on the secondary market? Why do people do that? There are 3 broad categories today.
The first is active portfolio management. And I won't go through all
of these, but
I want to give you a couple of examples. First, it could be a pension plan that's consolidating GPs, locking in gains. It could be a team that's relatively small and they have 400 relationships, can't keep all of them. So in order to decrease the administrative and monitoring burden, they sell off assets. It happens all the time.
It started happening in 2006. It's only accelerated. This is actually driving the market. There are a lot of sellers that should sell that have not yet sold, but I would argue that they will sell and 5 finished primary fund to funds. You're 13 years old, no more financials.
And so they take out all the remaining assets in that portfolio and they sell them to groups like us and they're done. They lock it up, fully liquidate the portfolio. And then finally, this slide. One, there's a misperception that if you're selling on the secondary market, you're distressed. It's absolutely not true.
Less than 5% of all sellers in this market are distressed. 2nd, this is not a point in time strategy. If it were, we would only be busy in 2,000 and 2,000 and 9. We're always busy, literally, always. And so the reason we're always busy is because if you look at all the other reasons people are selling, it's because it has nothing to do with distress or dislocation in the market.
I'd like to share with you key ingredients for a scalable business and a business that can drive AUM growth. And I consider this a key ingredient or key ingredients for a successful secondaries business and frankly, any Private Equity business. Starts with the franchise, the people. We have a great team. We've been together 16 years in the Investment Committee, more broadly, the permanent team, 10 years, and we're at Blackstone.
Now, while I'd like to take credit for a lot of what we've done in this group, and our team is special, we're really smart, we would not be where we are today without Blackstone. All the people you've heard from today and all of the groups have sourced us opportunities, actionable opportunities. In this setting, I want to thank all of those people and all of our colleagues across the firm. 2nd, sourcing. We source more deals than anyone.
We're not lazy. We don't wait for someone to call us and invite us to an auction. Good news, you've been invited. Bad news, so have 30 other bidders. It's not interesting.
2nd, pricing and execution. Our database gives us unparalleled leverage and ability to price in a third of the time and close in a third of the time. And then finally, performance. If you have strong franchise and strong people, great sourcing, strong execution, you should have strong performance, and we do. And that's what's driven our AUM growth from $9,000,000,000 in August of 2013 to $22,000,000,000 today.
Just a couple of things on that. We've grown from $9,000,000,000 to $22,000,000,000 in spite of distribution and just to delve in on the AUM growth, pre BX, we raised $11,000,000,000 over 13 years. When we came over, we had 9,000,000,000 dollars of AUM. Since we joined Blackstone a little over 5 years ago, we've raised $20,000,000,000 and we have an AUM of 22,000,000,000 dollars When we before we joined Blackstone, we only focused on private equity and real estate. Since we joined Blackstone, we significantly grew private equity, real estate.
We expanded to infrastructure and primaries and co investments. And then going forward, there's some really interesting opportunities in spaces that are contiguous to secondaries, for example, ESG or Impact Investing or GP Solutions, which are fund restructurings or GP led recaps for funds. So with that, in closing, our team has never been stronger. The SP Strategic Partners franchise has never been stronger. And we're both excited and engaged and enthused by all the opportunities you see in the market, and we hope you are as well.
Thank you.
Please welcome Ken Kaplan, Global Co Head of Real Estate.
Good morning, everybody. So earlier, Kathleen gave an overview of our global real estate business. And as part of that, she touched on the growth of our business, not just in terms of overall scale, but in scope and what we do. I'm now going to talk more about one element of that growth, which is Core Plus Real Estate. And we've chosen to highlight Core Plus Real Estate for a couple of reasons.
First, this is a part of our business that was just getting going when we had our last Investor Day, very small part of our business. Today, while it's still in the early stages of growth, it's over $30,000,000,000 of assets under management within our Real Estate business. That's significant and growing strongly. It's also a very good example, as other speakers here today are talking about, of the power of Blackstone and the power of the growth potential within the firm to build on the businesses that we already have, to grow into new areas. Because of the significance of this business and the significance of that growth opportunity, we thought we would talk to you more about what this business is, why and how we're doing it and what it means for Blackstone and for our shareholders.
So with that backdrop, what is Core Plus Real Estate? In our Core Plus Real Estate strategy, we're targeting high quality, substantially stabilized properties. These are assets where we still have the ability to improve cash flows through value creation and our asset management expertise, but we have a stability from in place cash flows already. It's a lower leverage, longer term hold strategy. And because of that, we set up this strategy with perpetual capital vehicles.
We're looking to drive returns through a combination of cash flows and appreciation. In terms of why we are doing this, you can see this continuum of real estate investment from core to opportunistic at the top of the slide. We built a track to bring that 16% net annual return. And that business has now grown to over $70,000,000,000 of assets under management. But that opportunistic part of the investing universe for Real Estate represents only a small part of real estate investing, about 10% of a typical real estate.
You do a great job here in the opportunistic space, but can you help us more broadly with our real estate investing, with our real estate allocations? And we felt that with the business that we had built, we could do a great job more broadly. And we chose this core plus space because it's very distinct and complementary to our opportunistic business and solve the need for our limited partners. And it's worth noting also this core space multiples larger in terms of opportunity set than the opportunistic business that we have grown over many, many years. So you say, that's great.
Big market opportunity, but why are you suited to do this? Aren't you opportunistic investors? Isn't that a different mindset? Well, it's the same advantages that we have and that we've developed in our opportunistic business over many years are also applicable to our core plus business. You've heard this from just about everyone who's talked today, starting with Steve and John.
There's a lot of repetition, but I think that repetition is purposeful. I mean, it's how the business is growing, not just in Real Estate, but across the firm. The real power of the scale and how we approach our business is one globally integrated business, taking advantage of the collective knowledge that we have, the proprietary data from all the real estate that we own, our relationships, our experience, our team of 470 professionals within Real Estate and the 2,000 plus professionals across the firm. And we operate with the same team and the same process across all of our real estate investing, with the same approach to high conviction investing. You heard Kathleen talk about the different areas we're excited about investing.
We're investing in those same areas here in our Core Plus business, where we see the best fundamentals and the greatest opportunities and our ability to execute with complexity and in scale. And the best way to emphasize this is with an example. 19Q Stuyvesantown right here in New York. York. This is an asset on 80 Acres, 11,000 plus units, a very special property that we acquired in our Core Plus business at the end of 2015.
It was a complex transaction between the seller and the existing debt and the City of New York and the tenants. There's also a large transaction over $5,000,000,000 And our ability to execute in that sale with that scale and complexity, we're able to make a very attractive investment. And not just on the pricing of the acquisition, but also the opportunities once we own the asset to draw on our experience in the multifamily space and actually across the real estate spectrum bring some of the lodging expertise we have in the service side as well. We brought that experience to bear, investing capital into the property, providing operational enhancements and creating a better environment for our tenants and a great investment for our Core Plus investors, and an investment that we believe will continue to grow and appreciate for many, many years to come. And it's not just Stuyvesantown.
Across our core plus real estate business, we've made 80 investments globally, includes 3 take private transactions, 15 recapitalizations and an average equity investment of over $300,000,000 per investment. That's very distinct and differentiated from the core space. In terms of putting some numbers to this business or this part of our business, again, this is a segment of Real Estate that we started 5 years ago, with one investment and this demand from our investors, this desire for investors to help them in this area. And it's grown from that one investment to a series of investment vehicles here in the U. S, Europe and Asia and a private REIT.
I'll talk more about those in a second. We've grown it all organically without purchasing any type of outside management fees or existing businesses. And really this growth is based on delivering returns, 12% net return across our Global Core Plus business. And it's this virtuous cycle again, delivering returns, resonating with investors and growing and accelerating in terms of the capital that we're raising. And as you can note, about $32,000,000,000 more than half of that capital having been raised in the past 2 years.
In terms of how we set up the business, we didn't only have the benefit of the acquisitions team and asset management team, but it's throughout the whole business. We able to use the blueprint for how we set up our opportunistic business over many years and copy that here in Core Plus. And here you can see regional funds in the U. S, Europe and Asia as well as in the bottom right, B REIT, our Private REIT. And this Private REIT is focused more on individual investors, which you've heard a bit about and you'll hear more about later today, oriented more towards current cash flow and we continue to get very strong investor interest raising over $300,000,000 in August alone.
And across these vehicles where you can see strong and consistent returns, once again driving that interest and driving that growth in this business. In terms of how each of these vehicles is structured, once again, perpetual capital, very powerful for the firm, for our shareholders. Also management fees that are based on NAV. As we grow assets under management, we capture these fees based on value and appreciation. And recurring realized performance revenue that gets generated without selling assets, without dispositions.
This is distinct from our opportunistic business where it's a buy, fix, sell and we're earning those performance revenues when we sell assets. Here they're recurring and they're based on net asset value. And this is again very powerful for Blackstone shareholders and our investors. And then finally, never being forced to sell assets, very important for our limited partners or investors in each of these vehicles. In terms of what this means, in terms of size of business and in terms of revenues for the firm, we have visibility today to getting to $60,000,000,000 of AUM and $1,000,000,000 of cash revenue over the next 2 to 3 years.
On the AUM side, you can see that growing from the $32,000,000,000 today to $60,000,000,000 really as a result of the pace of investing and the pace of capital raising that we're now seeing in the business. In terms of cash revenue growth, you can see 4x growth from about $259,000,000 over the last 12 months to $1,000,000,000 over the next 2 to 3 years. Growth, but it's also the result of how young this business is. So as those kick in accelerated revenue growth for our business. In fact, 75% of that $1,000,000,000 is from capital that's already been raised and invested.
So hopefully that gives you a sense of better understanding and appreciation of this core plus segment of our Real Estate business, hopefully of our Real Estate business. It's really great for our team. It's great for our overall business. It makes our business even stronger and better, great for our limited partners and of course, great for our shareholders. So with that, I'm going to hand it over to David Blitzer, who's going to talk about our tactical opportunities business.
Thank you very much.
Please welcome David Blitzer, Global Head, Tactical Opportunities.
Good morning, ladies and gentlemen. It is a real pleasure to be here today and be able to speak to you about our Tactical Opportunities business. We started what we call Tac Ops in 2012 to really address 2 trends, which were driving a very severe supply demand imbalance of capital. On the demand side of the equation, institutional investors were becoming more sophisticated, and they were increasingly seeking to find differentiated strategies. They were looking to take advantage of market dislocations that occurred oftentimes during short periods of time and to create a variety of opportunistic investment strategies.
Similarly, at this time, we at Blackstone were sourcing and uncovering a significant number of opportunities that were extremely interesting to us from a value and an investment standpoint, but they actually did not fit our existing mandates. Oftentimes, that was due to size, governance and assets versus companies. On the supply side of the equation, global regulation was changing dramatically. And in particular, the Volcker rule was eliminating the ability of regulated financial institutions to make investments using their balance sheet. The vast majority of capital in these opportunistic areas had historically been coming from these financial institutions, and they were suddenly completely out of the marketplace.
Consistent with what you've heard from a lot of my colleagues or all of my colleagues about our culture of innovation, we set out to create a new investment business to take advantage of this severe supply demand and opportunities was created to address this market dislocation, and our goal was obviously develop the leading global private opportunistic platform. The good news is if I could get this to work the good news is that our investors really believed in this strategy and the demand from our investors was fantastic. They embraced a product that literally did not exist in the marketplace. So as you can see, we started the business in 2012 with about $1,700,000,000 of capital, and we've grown it over the 6 years that we've been in business to a business that now has over $24,000,000,000 of AUM. It's a lot of investments.
So as you can imagine, we've been working really hard. And I think we've been prolific in building a world class team. Everything that you see at Blackstone is absolutely world class. And our focus on our people and on our culture is unmatched by anybody in the marketplace. So we built that world class team that now has 97 dedicated professionals.
We've obviously raised a significant amount of capital. And most importantly, we've been investing that capital in very attractive investments. We are seeking for our portfolios and our clients to build a diversified portfolio. We'll talk more about this, but also a non correlated portfolio across the entire alternative landscape that don't fit into any of the traditional buckets of Real Assets, Credit, Private Equity, etcetera. Just to give you a sense, of these differentiated investment opportunities, about 20% of them are in credit oriented investments, about 30% of them are in real asset investments and about 50% are in equity oriented investments.
However, out of that 50% in equity oriented investments, the vast majority of those are equity investments in financial assets as well as structured equity solutions. So we're quite proud of our performance to date. The reality is, is we're seeking to generate low teens net returns for our investors with significant downside protection and lower risk than many of their traditional alternative products. We have delivered that since inception and I realized IRRs have obviously materially outperformed and luckily to date we have 0 realized losses, which I'll come back to. The portfolio still need to mature, but we have significantly outperformed most of the equity and credit indices around the globe.
So we have a very simple first principle. You've heard this from we don't lose money. So I don't know if any of you have ever had the chance to be sitting in a room with Steve Schwarzman after losing capital. I assure you it is a life altering experience. Having been at the firm for 27 years, I have had to sit across the table from Steve after losing some money.
I can't do it again. So focusing on downside protection is the key tenet to our business. When you look at a large distribution of outcomes, which is something we do on every transaction, what we are obviously trying to do is to cut out as much of the left tail as possible and of course retain as much of the right tail as possible. And that is how we look at all of our investments. Everything is about the risk adjusted return.
On any given day at our Investment Committee meeting, we might have a 14% deal and we might also have a 21% in terms of base case expected deal. And we might like the 14% deal more than the 21% base case transaction, obviously based on the inherent risk within the transaction. So, correlation to other asset classes. By focusing on niche strategies, value plays, asset class dislocations, etcetera, we can avoid any reliance on the overall market direction to generate our returns. As you can see on this slide, we have never had a negative return quarter, and we've had little to no correlation to other asset classes.
So we obviously have a few key principles. The first pillar of our strategy and one of our obvious competitive advantages is unconstrained capital. TechOps can invest across the entire alternative investment landscape, all asset classes, sub asset classes, industries, geographies and up and down the capital structure. We're always looking for that sweet spot in the capital structure where we think there's the most attractive risk adjusted return. The only thing that we don't pursue are investments that would otherwise fit an existing Blackstone fund.
These are constantly evolving and their level of attractiveness at any given point in time is constantly changing. An area that might be really fascinating or where we think there's significant value in one particular quarter might be totally unattractive weeks or months later. And we're consistently shifting our focus to the most attractive opportunities available in the market across 21 countries. I had to count those last night, by the way. The second and most important, so I don't know why we put it second, but pillar to our strategy is to leverage Blackstone.
And I really mean this. This is the special sauce of PACOPS and more broadly, I think it's the special sauce of our entire investing business at the firm. Think about the incredible industry expertise, portfolio management, sourcing, value add that we bring to bear on our investment portfolio. Think about the massive amount of data, relationships, knowledge, industry specific, asset class specific that we have at Blackstone, and you've heard this before, but I'll repeat it again, that we broadly call our intellectual capital. And then think about the Tactical Opportunities business as really a joint venture within Blackstone that takes advantage of all this intellectual capital with which to create differentiated views and to create off market opportunistic investments.
About 22% of our investments are coming directly from other business groups. Do you know how much fun it is that I get to receive calls from all of my partners across the other business groups and geographies at Blackstone with the my favorite line, Hey, Blitz, I have a really interesting deal for you. And this happens literally every week on multiple occasions. And again, these are situations that didn't fit with their particular mandate, but they've met a management team or seen some data coming out of their portfolio company around an industry or an asset class, and they're looking to create an investment opportunity for the firm, which is how we think about it. How do we create the best investment opportunities across the firm?
We also harnessed this unique advantage to our Investment Committee and Governance structure, where 9 of Blackstone's business heads actually sit on our Investment Committee. So imagine an IC, which meets every single Monday. It consists of Steve, John, Tony and our other group heads. It's a lot of firepower in the room. And clearly, you can imagine how much fun it is for my team to get approvals every Monday on transactions.
And then the final pillar of our strategy is nimble execution. You can see some of the windows of opportunity. And obviously, we're looking for more dislocation. We've had a ton of it over the last 5 years. But you can see in certain areas how we've captured those pockets and periods of dislocation within TechOps.
We were very large buyers of U. S. Nonperforming loans as we started the business in 20122013. However, a lot of competitors and a lot of capital came into that market, really starting in late 2013 into 2014 going forward. We did very nicely in the space.
We saw that supply demand imbalance move the other way from short capital to long capital, and we just moved on to other opportunities. Similarly, when we saw the Energy markets gap out in late 2015 early 20 16, we made a number of opportunistic investments in the space before that market came roaring back over the course of the Q2 of 2016. The reason we were able to do that is back to this intellectual capital of Blackstone. Our views on the U. S.
Non performing loans were informed by our Real Estate Group. Our Real Estate Group happened to be the largest owner of single family homes in the country. So you can imagine when we're bidding on non performing loans, think about the data we have off of every single home we owned within Blackstone's real estate portfolio and aggregating that data and creating differentiated
views from what anybody else in
the market might
have, market by market by
marketplace. And similarly, our energy complex at Blackstone through the Private Equity business and GSO in particular is unmatched in Marketplace. So for TechOps, our ability to tap into that knowledge when there's a pocket of dislocation allowed us to be ahead of the game as it came to making some really attractive investments. And I'm over my time, which I usually am, but let me conclude by saying that we truly have a unique strategy in the marketplace. There are many folks out there with what they call special situations funds, but those are effectively credit and distress businesses.
In order to effectuate the strategy within TechOps, there needs to be real expertise across the entire alternative landscape. No one else in the market has this. There is no competitor with the depth of Blackstone. Sure, we have a little bit of competition in some of the sub areas with which we invest, no doubt, but certainly not across the broader spectrum. We truly believe that this intellectual capital that we help move around the firm and that collaboration that I described with the rest of Blackstone.
I could go on and on, which I won't do about all the time we spend with the different groups of Blackstone. It's not replicable at all. I'd love my job, as you can tell. Think about running a business that can literally invest in effectively anything that it finds interesting.
Please welcome Joan Solitar, Head of Private Wealth Solutions.
Good morning. So I am really excited to share with you what we see as the enormous need and consequently a really massive opportunity in retail and how we're attacking that opportunity, our proof of concept and why it would be difficult, if not impossible, for anyone to replicate and catch up to where we are. So a few points on the massive market opportunity. Today, Private Wealth sits at $70,000,000,000,000 which is bigger than even the institutional. We had much access to really great products.
And if you look at the penetration rates, today they sit below 5%. When we entered this market, they were about 1% or 2%. And I would say they're still well below that 5% number. And if you want to put some numbers behind the growth opportunity, Private Wealth in aggregate is expected to compound at about a 6% growth rate. If the roughly 3% number moves to 6%, it's effectively tripling that addressable market.
And the CAGR at that point is in the very high teens. And as John So there are several reasons why penetration has been so small. 1, because there really wasn't an abundance of great product or accessible structures. And 2, as a consequence of that, advisors really were unfamiliar with all. They didn't know how it fit into their portfolios, how to transact.
And many of the firms, frankly, just weren't set up to seamlessly process the funds regardless. So what's changed and is changing is that we and others are launching funds with structures that are far more user friendly. And at the same time, the technology behind transacting and integrating Alts into practice is actually getting better. So we've invested substantial dollars in Sweat Equity to build a global scale and a scalable business by delivering not just good returns in retail friendly structures, but also partners. We made a strong commitment to this channel almost a decade ago.
We've never wavered from it and will continue to increase resources dedicated to this high growth and high value market segment. Our value proposition is that we provide institutional quality product at institutional pricing, often in bespoke structures across all the alternative asset classes. We begin with good performance across our funds and we're innovators around client solutions. There is no other firm that either does or can do this. We've built a completely unique education and marketing platform.
Our robust advisor education program begins with Black Stone University, what we call BXU, which we launched in 2011. To date, we've had thousands of advisors from all of the major We talk about how alternatives sit alongside liquids in their client portfolios. In essence, we're sharing the intellectual capital that resides in our firm to make the advisors smarter around alternatives. With several years of data as our proof view and putting Blackstone funds in their client accounts within the following year. And essentially, we've created this echo chamber because we now have thousands of Blackstone advocates who take that knowledge and that enthusiasm home to their branches and in doing so double or triple the visible market by about 50% when we entered the IBD RIA channel with a full wholesaling and debt in our reach to tens of thousands of additional advisors, and we're delivering that same educational experience to them.
Beyond BXU, we're launching a first of its kind alternatives digital platform, which will allow advisors and investors worldwide to engage with us across investing insights, product information and and practice management support. As with the rest of Blackstone, we're able to attract really top 10 globally. And we Blackstone trained more than 60 channelized salespeople, which means that they're bespoke for a particular channel, whether it's a CIO in a family office, a private bank or wirehouse advisor or independent broker deal Virtually offered funds coupled with such a broad array of episodic raises means that we're front and center every day. We get to know the individual advisors' needs and we build deep relationships over years, which creates a virtuous cycle where the advisor has a good client experience and wants to entrust us with more of their client assets. Advisors in large quantities are now significant allocators of capital across numerous Blackstone funds, and yet we over several years, we've developed a huge proprietary database extending to more than 250,000 financial advisors to better drive marketing and sales.
We want to work with the best quality advisors, so we use data analytics and an opportunity ranking model that we created to drive better outcomes. This is part of Black Stone's broader and significant effort to integrate data science within our investing processes and portfolio companies, and we'll continue to invest heavily in this competitive advantage. In our earlier days, we sold slices of drawdown funds that already existed like Global Real Estate. But really, the biggest growth engine is the structures that are more bespoke to retail and are perpetual, a word I think you heard a lot today, creating value for both investors and the firm and by extension shareholders. We're able to access all of our investing areas, which has resulted in about our multi asset drawdown fund or recently launched perpetually offered floating rate income fund.
In most cases, these new structures reach a much bigger audience with lower eligibility requirements than a traditional PE product, so that it's the sweet spot of the very large, untapped $500,000 to $5,000,000 market. If you can imagine being an advisor presented with all of this, the performance, the access, the education, all that's encompassed in the Blackstone brand, so trusted and so powerful in the retail space, you understand and rely on the value that we bring to your practice. And it's this message that we hear all around the globe and why we have such optimism that our platform will enable accelerated growth. So we've grown quite a bit since our beginnings in 2011. In that year, we had 15 people in the U.
S. We distributed 1 product at one firm and we raised $200,000,000 We were developing relationships with advisors And in that year, 180 of them sold our One Fund. And by the way, this One Fund, One Firm model is where, by and large, our competitors remain today. We've now had the accumulated wisdom of 7 years to understand what partnership with the Stone experience. So today, we have more than 60 global channelized salespeople.
We're raising assets across 30 Black Stone Funds, 10 of those bespoke for retail. We're deeply engaged with dozens of the world's largest private banks and hundreds of independent wealth advisors. And we have more than 15,000 advisors placing their clients' capital in Black market. We're also seeing a lot of growth in our business. We're also seeing a lot of growth in our business.
We're and we're still seeing an acceleration. So the growth has been staggering, but we anticipate far more, knowing that the enormous momentum created every quarter and every year. So I'm going to take you briefly through a case study on our non traded REIT, B REIT, because I really think it'll provide good insight into how in many ways we are shaping the industry. So we knew we could develop something really special that leveraged the investment capabilities of our leading real estate platform, but tailored specifically for the retail investor, filling an important client portfolio gap. So we designed something that uses the same teams to source and analyze investments as the Global Brett Funds, so institutional quality, but with a better fee structure than competing retail funds.
And in short order, it was just it was like lightning in a bottle. So we're less than 2 years in and we've already grown the non traded REIT to $4,000,000,000 of highly profitable and perpetual capital, and it's a key sales raised in the industry. About a third of the advisors accessing it in client product. And so in many ways, it became a gateway. And for almost 3,000 advisors, B REIT is the 1st Blackstone product that they've sold.
For the 3rd time, you'll hear we raised over $300,000,000 in August. So that's our highest month ever, and it was August. And we're just seeing the momentum build. Our non traded REIT is now just finding its way into new private equity that already exists. Prior to B REIT, individual investors had never been able to access broad institutional commercial real estate below the wealthiest bracket.
So it's been a real game changer. So yes, we're putting a $250,000,000,000 number out there. And what's the path to reach it? We are today in a dominant position relative to any competitor. And as I mentioned, there are really 3 ways we'll grow, and we're attacking all three: relationships and new products.
We went from one private wealth partner to 100 today and we're still growing, including outside of the U. S. And many, many firms are relatively new to us just this year and will develop and deepen those partnerships. Typically, returning advisors sell 2 to 3 times the amount of new advisors because the good experience in 1 fund drives them to either seek out other Blackstone products or put more clients into the same fund. Essentially, the more they do, the more they do.
So deepening those relationships is key, which is why having an army of is critical. B Reets a case study that is repeatable within Blackstone. Today, we have around 10 bespoke retail products, some are newly launched. And we have a path to new strategies that are already under development that stretch across every segment of our business and will serve investors below the qualified purchaser level to be more accessible and have broader market reach. With a globally extended distribution channel, deepening relationships and an ever rising number of advisors, added perpetual product and growing AUM, we've established ourselves as the clear reference institution in alts in the retail channel.
And it's this blueprint, the massive investment in capital and investments and brand that gives us confidence that $250,000,000,000 is an attainable goal. Thank you.
Ladies and gentlemen, please welcome to the stage Tony James, Executive Vice Chairman for Blackstone.
Well, we'll wrap up here. This is the last presentation you'll be happy to hear. And I want to say I'm so proud of all the people you've heard from today. I've watched all of them mature in their roles and become, in my opinion, the best in the world leaders in their seats. I'd put them up against anyone, and I know them all.
And they're young. But this characteristic of Blackstone never to be satisfied. We're flawless in our attention to detail. And we always want to learn, learn, learn. And of course, we love new initiatives.
It improves our businesses. We reinvent ourselves and we grow. These new initiatives in my time here at Blackstone have allowed Steve and I to grow our business 20 times in the last 15 years. 20 times in the last 50 years. And we've done that with no decrease in returns whatsoever.
That growth continues today. And accounted for 1 half of our asset growth. Now, not all our new initiatives are successful. Steve got into some of this, but we are very disciplined and we stick to the criteria that are listed here. We want only talent driven businesses, Navy Seal Businesses, not U.
S. Infantry Businesses. And we want cultures and people to believe in the firm, believe in each other and our team players. We only want businesses where we can achieve industry leading investment performance and maintain it and do that in real size. And we like things, if it's acquisitions that are not fully developed.
So we can inject Blackstone into aluminum and watch them grow. And of course, all of our initiatives have to have a high return on capital, but also a high return on time and a high return on brand list, but very, very few opportunities make it through the screen. We prefer to start things ourselves, and we've had a remarkable record of entering businesses and creating leaders as shown on this slide. This is really a unique aspect of Blackstone. Many, many firms have tried this for decades.
When I was a young investment banker, I would bump into people all over and they say, my aspiration is to be just like Blackstone. They've been saying that as long as I've been on Wall Street. And guess what? No one has succeeded yet. It's easy to think about on paper.
You can show a lot of white space.
You can show a lot
of stuff you don't do. It's very hard to execute well, long term growth. Now acquisitions are a part of our mix. They're not our preferred approach. But where we don't have the skills or we really want to accelerate growth into leadership and we see an opportunity, they are an important tool.
And what we find when we acquire good companies with strong leaders, put them in put them under our brand and put them through our distribution network, we can accelerate growth dramatically. And Verne Perry's presentation on strategic partners is a classic example. The overall results are shown here. Every acquisition is successful period of time and it's been very value accretive to shareholders. I would ask you to compare that to any other firm any other firm in our industry.
No one can match it. Now, when you look at the market and the shift to alternatives is our megatrend that helps us in all our endeavors. Public markets, most prognosticators say, will return 3% to 4% in debt and 5% to 6% in equity. No matter how you mix those in a portfolio, it's not going to be enough return to make people happy. Alternatives can not only increase return, but they're uncorrelated as you've heard many times from the groups today.
And this decreases return and decrease your risk simultaneously. With the most sophisticated investors who figured this out early, like Swenson at Yale, they're up over 50% allocation to Alts. So what you can see with the penetration of Alts in the segment places and secondly, just how big at the bottom of the page the assets are that we have to target. Now I'm going to talk about a few specific initiatives that we are rolling out now. First is Infrastructure.
Our goal is to build the largest infrastructure business in the world. We started with a core plus infrastructure fund, but we see multiple infrastructure fund strategies developing over the years. The need for infrastructure spending in the United States and across the world is obvious. We're not going to be able to build a new business, but we're not going to be able to build a new business. We're not going to be able to build a
new business, and we're going to be able to build a new business. We're going to be
able to build a new business, and we're going to be able to build a new business. For us to enter a new business, and that's been a consistent theme that we've looked for over the years. Now building infrastructure is a natural step out for us, and it was already one of our most successful investment areas. We've invested in tens of $1,000,000,000 of transactions over 14 years and delivered a 36% return. In other words, we have the skills, we have the record, we have the limited partner relationships to hit the ground running.
Now you all are very impatient people. Building businesses takes time, but we think we're off to an excellent start here. We have a fantastic team that just joined us literally earlier this year. Within a few months of their joining us, we closed on a $5,000,000,000 first close, one of the biggest first closes of any fund ever and the biggest first close of any infrastructure fund ever. Infrastructure, as you've heard today, just like core plus real estate, is a permanent capital, open end fund.
That means that we have stable asset values. These are a lot like or are fee related earnings. Unlike drawdown funds, which start with a big headline raise and then you have to give the money back in a few years, permanent capital vehicles start smaller and you continue to raise money on an ongoing basis as we deploy the assets. This allows us to grow steadily from both portfolio company appreciation and new acquisitions. With $17,500,000,000 remaining of the first $20,000,000,000 anchor order we got, we're really well situated execute large transactions, which are much less competitive, again, another theme you've heard from Kathleen, from Ken and from Joe.
We really think we can scale this business over time, and it will be one of our largest segments. Another new business is Life Sciences. That may surprise you because it's at the opposite end of the spectrum of most Blackstone businesses. It's Venture and Growth and it reflects a move broader move of the firm that you'll see over the next 5 years in the future, I believe, towards earlier stage and more technology driven investing. I think Life Sciences will be the next great revolution in the world in your life times.
The advances in biology, genetics, chemistry are making unprecedented leaps in our ability to cure disease. Add in big data and AI and it's gasoline on the flames. There's a tidal wave of new opportunities coming. At the same time, Big Pharma is in full retreat, and they are traditionally the major funders of R and D in this sector. They are facing collapsing stock prices and growth challenges and are maniacally focused now on short term profitability.
This is squeezing R and D budgets and moving them much more towards development and away from research. The combination of these two forces is causing a mushrooming funding gap and that, adjusts at the time when the opportunities are most exciting. And that, of course, is our opportunity as well. Now filling that opportunity is not easy. It requires an unusual combination of scientific skills and operating skills.
We need longer duration vehicles. We're putting things in human beings. You can't create a new drug in a couple of years like you can a new Internet company. You need to be able to feed these ideas, feed these companies for quite a long time. So you need a different kind of fund structure, one that's flexible to stick with a company all the way from discovery to commercialization.
This business model required to do this well does not exist today anywhere and we can do it. I think if we do, we will create a very, very special business that will not be easily replicated by any of our competitors. We have enough experiences in other businesses that we have most of the elements we need today. And under the guidance of Kevin Scherer, our Chairman of this group, who was once CEO of Amgen, we are assembling a world class team of deep scientists and again, hard unicorns to find. And I think what we'll be able to do here is offer our LPs and a unique ability to invest in scale in venture, an area where they are all very underweighted.
Another big opportunity is managing insurance assets, and this has the clear potential to be our single largest business group in AUM. Let's start with the insurance industry. It's huge. They're facing increasing regulatory capital requirements and 0 interest rates are squeezing severely their ability to grow. They have no choice, but to move into alternative assets and into private credit where they can get more yield for the same risk.
They are also being forced to sell books of business obviously, we're ideally positioned to help with the alternatives piece of this as the largest and broadest provider. But those very alternative activities that we're so good at also make us the largest originator of credit assets in the world today. And we don't have any pocket for those alternatives. We're creating valuable merchandise with nowhere to put it. So I believe we are uniquely situated again to manage third party assets for insurance companies.
And we already have $50,000,000,000 of it, so you can be sure we have established credibility with the clients. But there's a whole other dimension to this. These companies, as I mentioned, are selling mature books of business. They have to do this to conserve capital. We have the opportunity to raise 3rd party money in permanent capital vehicles and buy these blocks of business.
It's more complex because we have to manage the liabilities as well as the assets. But then if we do, we get the whole balance sheet in perpetuity and we can make money both managing that balance sheet and the assets on that balance sheet as well as managing the equity owning these books of business. This is fundamentally a larger and more profitable business than simply having accounts to manage for insurance companies. And let rest assured, there's huge volumes of business. There's 100 of 1,000,000,000 of dollars of insurance assets being sold as we speak.
Finally, another huge opportunity for us is defined contribution plans. Some countries, most notably Australia, have defined contribution plans that are heavily invested in alternatives. In fact, it is not only the key driver of returns, it's key competitive differentiation in that market amongst managers. Here, DC plans are effectively barred from investing in alternatives. We believe this cannot last.
Retirement savings in America are woefully inadequate, Not just a little short, it's an embarrassment. 1 in 3 baby boomers retiring in the next 10 years will be in poverty or near poverty. This is obviously an untenable situation. The least painful and in some ways easiest place to start closing that gap is simply to invest the money better. 401s in America have historically earned about 3%.
Pensions have earned over 7%. Why? The difference is alternatives. Pensions are heavily invested in alternatives, as you could see from some of the prior slides. Whereas 401s must invest in publicly traded, instantly liquid datable stocks and bonds, where the returns, as we mentioned before, will be much lower.
As we speak, these regulations are being looked at and we believe they have to change. Access to alternatives needs to be democratized. Individuals should have the same access as institutions, even if these products are invested in other funds like target date funds, but they need access to them one way or another. The massive scale of retail money means that a small shift of assets into alternatives is a huge opportunity for our industry. But who benefits most?
One would think that the firm with the biggest brand, the broadest product line and the most developed retail investor infrastructure would be the biggest beneficiary. Well, at least that's what we think. And of course, we have more and it's already underway. Not just gaps in things we do, but new things in process. Coupled with double digit organic growth, we think we have clear line of sight, as you've heard, to not only $1,000,000,000,000 of AUM, but to double the firm again in terms of profit and distributable earnings.
Thank you. Thank you for coming today. Thank you for your attention. We're going to reset the table up here and then Steve, John and Michael going to come up and I will come up and answer your questions.
Who's first?
Bill Katz from Citi. Thanks for
a great presentation today. So Michael, in your presentation or in your presentation, you laid out a path to 6 dollars of distributor earnings. When do you think you'll get there? And then as part of your sum of the parts commentary, use the 23 to 25 multiple when you're applying that to the FRE. What structure were you considering when you did that math?
Thank you.
Bill, we love your questions always. And we're doing it face to face even better. On the second one, and it was 23 to 26, Bill. $25,000,000 We're assuming the status quo structure, fee per share. We look at this modeling, the modeling that went into the session that we do all the time.
We look at things on a 5 year basis, on a 10 year basis. And in terms of when we could cross over that point, we can't pin it down to a single year. We called it longer term. Certainly, in that second half of a 10 year sort of planning horizon, that's where we think we can cross over into that level. Craig here.
Thank you. Good morning. So what is your appetite to expand your Capital Markets business? Which is one of those reasons you spun that out. And also I know Blackstone Life being capital light.
It's a nice quality. We'll get close. Sorry. So I can repeat it too. But what is your appetite to expand the Capital Markets business?
Maybe talk about conflicts of interest and also your desire
to be capital light? So,
I'd say we really Tony referenced it on his slide. We'd like in a more capital light way, but there's more we can do. And one of the things you see happening with our firm is we touch so much. Historically, we would do a private equity transaction, we would finance it, and we would just focus on the equity part of the capital structure. And yet all that debt, we essentially gave to the street and didn't think much about it.
Today, we have all sorts of clients who are saying, hey, I'd love access to that deal flow. We're not just this high octane business. People would like private credit as well. And so I think for us, it's more about focusing on this, putting the right resources against it. I think the opportunity for Capital Markets could grow to be substantial.
But again, we are going to be mindful on how we do it. We will manage how much exposure we have from a balance sheet standpoint. Thank you, sir.
Thanks. It's Mike Carrier at BofA. It's a 2 part question. First, Michael, just on the growth in earnings, I think you mentioned the FRE mix improving over the next few years. Just in terms of the NAV versus maybe commitment, like how do you think that's going to shift given some of the new businesses?
And then the second part is just in terms of the growth opportunities that are ahead of you. What investments are being made maybe on like the infrastructure? I mean, just to manage the significant growth opportunities versus things that could go wrong?
On the first part, Mike, and I can hear you, but I can't see you. The NAV based structure is aligns very closely with our open ended perpetual capital structures. So core plus, which we talked about, our infrastructure is open ended fund. And so and obviously, in general, those have certain characteristics, very attractive risk adjusted returns, longer duration, longer hold periods, a component of yield. So the structure is not divorced from the eyes of clients and the eyes of us.
And so it's a natural act that that then has a NAV based fee structure and it leads to our sort of definition of perpetual capital and how we think about that.
Was your question around infrastructure to support the business? Yes. So I would say if you looked at our headcount, the 3 fastest growing areas are compliance, technology and our communications function. And that's reflecting the way the firm is growing, which obviously given the proliferation of products, we need to be able to make sure everything we're doing, conforms. That's very important, obviously, from a legal standpoint.
Technology as the firm grows and particularly as we widen out in terms of who we touch, what Joan was talking about, technology becomes really important as you go from a couple thousand LPs to maybe 10,000, 20000, 30000, who knows what the number will be over time. And then communications because we're obviously touching a broader audience. So I think it's one of the advantages we have as a firm is we can afford to make those investments given the scale of our business.
And if I could just add to that, just in general, I think we're taking our leveraging our scale and the maturity, not from a growth standpoint, but of the infrastructure of our business and obviously trying to drive economies, trying to do more centralization, which leads to automation, greater efficiency and greater effectiveness in all those functions. So, we're trying to execute on that and we're sort of going function by function. I've certainly done that in finance to drive to those to create value in those functions in that regard.
Thanks. Devin Ryan, JMP So can you maybe talk a little bit more about the Life Sciences initiative? I thought that was interesting. And maybe just the scaling of that, what that looks like? And then just life sciences as an industry seems to be a little more volatile than some of the areas within Blackstone.
So just how should we think about that? Is that correct? And then will it be more of a volatile, but maybe upside opportunity for you?
Well, there are certainly aspects of it that are volatile because they're earlier stage. But there are certainly ironically, the biggest capital invested in that sector right now is sort of later stage royalties and stuff like that, which are not volatile. When we see this ranging all the way from venture to growth equity, royalties, buyout, I don't think it's going to look terribly volatile to the to our shareholders or our LPs. In terms of scale, like any new business, it's going to start reasonably small. We'll start with a few $1,000,000,000 of total AUM probably, but I think that could scale up into the tens of 1,000,000,000.
Great. Brian Bedell, Deutsche Bank. Maybe a similar question on the insurance side and in terms of the new initiatives. Can you guys give us a little bit more detail on the structures that you intend on raising and the blocks of business that you alluded to in terms of buying and insurance? Just sort of structurally how that would work?
And then sort of the tempo of the opportunity as you sort of both near term, as you mentioned, there's lot of blocks of business going on right now. And then in this march towards $1,000,000,000,000 in assets, is that included in that? Or is this a potential add on to that?
Okay. Well, let's say the simplest is simply getting an account and managing assets for an insurance company when they a big coming call calls us. We want to invest in your private equity fund or we want you to manage your private credit sleeve for us. I mean, that's the simplest and it runs all the way to buying the whole company. And the vehicle but not on our own balance sheet, the vehicle through which we do that would be some sort of fund, either a drawdown fund as we've done with Fidelity Guaranty or a permanent capital vehicle, could be a SPAC, could be other things.
So vehicles were agnostic among that. We'll probably use a lot of different ones and it will vary some between the U. S. And Europe, I think is how we approach things. Are still in the building mode in terms of people, but I'll let Michael comment on the $1,000,000,000,000
Well, in terms of how we the question is the big drivers to get to a trillion?
No, no, no. Insurance is an important component of getting to a trillion. Let me just put
it on. I was going to answer that too, so yes.
Great. Thanks. Alex Blostein, Goldman Sachs. So speaking, I guess, with some of the newer growth initiatives, the 4 zero one and the DC channel as a whole, something we've talked about for a while. It sounds like things perspective you're seeing, within that channel and whether or not that's something you guys think could materialize over the next 2 to 3 years?
Well, in today's Wall Street Journal, you probably didn't notice it, where they're talking about even the SEC talking about it's important that we open private assets to retail investors. The lack of return is affecting everyone. And people in Washington are hearing that. We're having conversations with both legislators and with people in the administration about this issue, and we're getting a lot of interested positive response. But I don't really want to go further too much further right now and put anyone on the spot.
I will say that this problem can be solved pretty much within the administration with simple rule change.
Hi, Patrick Davitt, Autonomous. You mentioned a couple of times the recurring performance fee aspect of some of the newer businesses, Core Plus and Infrastructure. I think your previous guidance was that, that would really start to kick in soon. Is there a plan to kind of closure so that we can start to think about that maybe as a different value than the way the market is currently treating Kari?
Well, I think you're basically echoing what I shared in my presentation, which is starting in this quarter, we are going to take a large subset of the perpetual capital realized net performance revenues that fit the characteristics I mentioned, and those will be counted as FRE for the reasons I mentioned. We think they align very naturally. And from a sort of itemization standpoint, you will be able to see those relative to management fee driven fee related earnings. So I think you'll get exactly what you're looking
for. Mike Cyprys from Morgan Stanley. Two questions, if I may. First question for Tony. Is opening up the alt industry to the DC marketplace a double edged sword?
And by that, I mean, if you speak about democratizing access to alternatives, the floodgates open up, money comes pouring in. Are there enough investment opportunities to put all that money to work? And how do you think about the impact that all that money could have on returns, investment returns across the alternatives landscape?
Well, we could talk about that for a long time. So far, as our funds have gotten bigger and bigger, we're not seeing any shortage of opportunities. In fact, lately, I think, despite high values and whatnot, I think our last few years is the highest, for example, in Private Equity with a $1,000,000,000,000 chasing deals that you read about, the highest investment rate we've ever had. So and you've got fewer and fewer companies that are public. I mean, look at what SoftBank is doing with $100,000,000,000 fund in private companies.
So I think there'll be plenty to do. And frankly, if the returns are down a little bit, I would say, just because of interest rates. So maybe a flood of capital puts some pressure on that dimension. But at the same time, I think as interest rates go back up and generally the return spectrum goes back up, that will offset it. So I expect we'll be able to put a lot of the bigger effect on our P and L will be more capital than any change in returns.
Great.
And just second question on the investment process. Maybe you could talk a little
bit about what's changed the most with your investment process, say, over the past 3 or 5 years?
How is that evolving today? Maybe you could talk a little bit how you're using technology and data and analytics? And if
you look out, say, 3 to 5 years, what
do you envision will be most likely
to be our investment process is remarkably unchanged. Generally, on Fridays, by 5 p. M, better be by 5 p. M, people on the front rows will laugh. These big memos come out.
And that has been the process not just for 3 or 5 years, but for 25 or 30 years. And so the way we look at things, we've added probably more layers over time as we've gotten bigger in terms of heads up committees and review committees before we get the final investment memos. But basically, that process underlying things is the same. I do think the data is changing things. We now have this data team, a couple of us talked about that.
We're bringing them on the front end of deals, looking for information inside our portfolio companies, but also as we think about deploying capital. If you think in a real estate context in the old days, you get data from the Bureau of Labor Statistics. Today, maybe you can get interesting stuff off the LinkedIn site in terms of job openings on a certain geographic area. So we think again because of the scale of our business, we can afford to invest in a data team that can give us a competitive advantage. And if we play it forward, as you were asking, I would expect we'll do more of that.
We'll be more analytical. We'll figure out how to harvest more data and that will give us a competitive edge. And I think that in the private markets will become increasingly important.
I might add that I think another slight change that John is going to further, I'm sure, is more of the investment committees include for more cross functional people. So we have some businesses, I think David Blischer talked about his. But in Infrastructure, again, it's a lot of different groups. With John becoming President, now he's a lot more than just real estate. Michael, who was once in private equity, sits on a lot of the investment committees.
So more and more, we have that cross fertilization at the top of the firm, so we get the benefits of intellectual sharing.
It's Glenn Schorr, Evercore ISI. Michael, earlier you showed that 1100 basis points of FRE margin expansion over the last 10 years as you scaled. You obviously have a few things going on, so I know it's complex. But as you scale towards the trillion, as you scale towards that hopeful $6 of DE, how should we be thinking about either the FRE margins on the endgame or the incremental margins along the way?
Sure. You mentioned the 1100 basis points over the last 10 years. A lot of that's come in the last 6 or 7 years. So really, we've been expanding our FRE margins on average 100 to 200 basis points a year. And that's based on the structure of our firm and how we grow businesses.
So I see in the medium term and the longer term, certainly in the medium term, we have good visibility, a continued path along there. It may not be 200 a year every year. It may be closer to the lower end of that range. There may be years or periods where that doesn't happen. But I think for the foreseeable future, we should continue to have that leverage in our business.
Hi. My name is Colin Ducharme with Sterling Capital. And I had two questions. First for Tony, I'm glad you mentioned that Vision Fund. I was curious just to ask a little bit more about the prospects for Blackstone with a similar fund.
I mean, if you believe that we are currently in a 4th industrial revolution, big data, AI, Blackstone could be uniquely positioned to have a vehicle similar to that. And that quantum of capital, I recall being met with derision and maybe some incredulity at the time it was announced, yet it has been deployed with aplomb. So I'm just curious if you've looked at that. I didn't see that in the new initiatives. Could it be on the radar?
And then secondarily for John or really for anyone else, separately in infrastructure, that's been a theme we've heard a lot about for a decade or more. Yet I think deployment has come a bit slower. And I'm just curious as to your view being in the business as to why and how we surmount those challenges going forward?
Thanks. Okay. Well, I guess, no, we haven't really thought about a vision fund. I think our ability to replicate that would be very hard to do. So, however, I'll let John talk about this, but I think you will see the firm leaning into technology.
And so
when he answers the infrastructure question, he might comment about that.
Yes. I would say generally, Tony touched on it, that a push towards more growth orientation at the firm, I think, is really important over time. Life Sciences is one of those legs. I do think we have to do more in Growth Equity. We've done some of that in Tactical Opportunities.
We've done some of that with Joe in Private Equity. But I think having more dedicated capital in that area is good. Actually think Asia, where we just raised 2 large funds, is another area where there's more growth. So growth overall, I think, is important in the world as investors. As it relates to infrastructure, the challenges in the U.
S, it's interesting. We have a free market in many things, but not when it comes to public infrastructure. And so Europe and Canada and Australia are much more open to private ownership of public assets. Some of that may be changing as a result of needs, but there are also other things like capital needs of utilities, what the shale revolution is creating in terms of needs for midstream assets. So when you look at it, and Tony had good stats on this, just the aggregate needs of several $1,000,000,000,000 of infrastructure in the United States, I think that's going to force this market open.
And we've begun looking at investments. We've got some interesting pipeline, some interesting larger opportunities. So our confidence about deploying the capital over time is pretty big.
Great. Thanks. Jerry O'Hara, Jefferies. Just drilling down on the GSO business for a moment. Direct lending and private debt are increasingly in demand and as a result attracting clearly more competitors.
Can you talk about how you're positioning for this demand and perhaps any differentiated approach you're taking within the Private Debt segment? Thank you. Where is the question? It's just direct line nature.
Okay. Yes. Yes. I was just yes. I was it's hard to do the mic.
I was just going to say that I think the biggest advantage GSO has, and Dwight touched on it, is just scale. That as the market gets more crowded, the ability of GSO to show up and write $750,000,000,000 $2,000,000,000 checks is a huge competitive advantage and the ability to understand complexity and go into markets where you need real expertise. Energy is a great example of that. What we do in Europe, I think, is another great example of that. I think the domain expertise we have within GSO and then again across the broader firm, huge competitive advantage and then the scale we operate at.
So yes, we're seeing more competitors, but the deal flow we've been seeing, I would say, over the last 3 or 6 months is probably as good as we've seen in
a long time. Yes. I would just add couple of things. First of all, don't forget, we built the largest BDC in the world, which we sold, but that was we that built that and we're confident we can rebuild that. I would also say that historically, we have not had a place for kind of investment grade private credit that originated in that same process by GSL.
Now with insurance and with the direct investing part of BAM that John talked about, we will have pockets, actually large pockets for that kind of paper too. So we can be an omnibus solution that really no one else is situated to be.
Thanks. It's Brian Bedell Zwartschmidt again. A question on financial reporting. As we think about the measures of economic net income, which you guys obviously started up back in 2007 versus distributable earnings, which is much more durable and meaningful metric. How do you think about the future of that ENI reporting?
You see KKR discarded obviously and it seems to be working for them. Do you see yourselves also substantially deemphasizing that to the point where consensus would be really be refocused on distributable earnings?
I'll take that. I mean, today, our goal just stepping back is obviously to provide as much information and transparency to understand what's happening in our business. I think in that spirit, E and I and DE in our view, I guess we did author these metrics, do tell you different things in sort of the short to medium term. Over time, they should converge. But in the short and medium term, E and I is a predictor of obviously what's changing in terms of the value of what you own, realized or unrealized.
If you like the carry receivable metric is sort of a true north of what our marks are. E and I obviously basically measures the change between them. So there's sort of I think no getting rid of them. They're both, I think, very meaningful. There's a question of emphasis or de emphasis.
The idea of sort of simplification of our metrics for easier consumption by markets is something we are obviously open minded about and think is a good thing, balanced against giving real information to all of you. I also think different companies are differently situated. Some might be a bit more volatile from an E and I standpoint because of the structure of their business and their balance sheet exposure, etcetera. So different people make different choices. We're open minded for now.
We're going to stick with giving you both as well as other metrics.
Yes. I was just going to add to that, that if you eliminated E and I as a metric, and I think DE shows our cash generative abilities, so obviously very important and we put a little more emphasis on it. But if a deal closes 1 quarter a day later on October 1 versus September 30, the DE looks dramatically different. So I think you need that E and I as another tool to understand what's happening.
Great. And then just a quick follow-up from a segment reporting perspective. Right now, they're organized by investment type. If we think about obviously, you're in a lot of different distribution areas with a lot of different opportunities. If we think about a potential new segment, I guess, on the lines of infrastructure, do you ever see that becoming so large that it's an independent business
And what's happening within that business sort of And what's happening within that business sort of masked by the way things are reported. So I think it's a function of scale.
Bill Casingen on the offside. Just going back to the growth opportunity, you had spent a lot of time, say, on the de novo opportunity for the franchise, but you also spent some time on acquisitions. Tony, you talked about your successful track record in that. Where, if any, are the gaps that you're looking strategically from an acquisition perspective on the Blackstone balance sheet, if you will? And then how does retail fit into that since you focusing incrementally on the 401 ks and DC side?
Do you need a larger manufacturer of that distribution footprint to help hit
your goals? Well, I'll start maybe. I don't think we have any gaps that need filling. We might find some opportunities that we fill, but we're not we don't feel like I mean that we need to be in places we're not retail distribution, like a securities firm or something like that. We don't feel we need that at all.
We don't feel we need to be in the long only business, frankly. There may be some niche long only businesses we like. I suppose you could argue that Harvest is one of them, but they're sort of hybrid businesses, but we don't feel like we need to be there. And I don't think we need to be in places we're not like commodities. So we've looked at all these things over the years.
I think we have a very robust product set and there will be other opportunities, but there are more positive opportunities than need driven.
And I was just going to add that small acquisitions, the best model for us, Bill, is to buy something relatively small like SP was at the time, frankly, GSO was, and then put it in the Blackstone system, our distribution, our brand and then the business grows really large. For us to go out and pay for lots of AUM, which we can manufacture ourselves at a much lower cost, doesn't make sense. So we will do, I think, small tuck in acquisitions, as Tony describes, but we'll be, I think, reluctant to do bigger things.
Mike Cyprys from Morgan Stanley. Just a follow-up question here. Actually, 2 quick ones. Just on capital allocation policy, just curious, latest thoughts around that. Maybe it's more optics, but right now, you pay out 85 percent.
Is there any thinking around just maybe paying out a fixed component of distribution and then have some sort of variable component on top, maybe that's more optics? And then second question, maybe more for Michael, just in terms of the little bit of a nuance change in FRE with that sort of added piece. And just if you could talk a little bit about any new disclosure that may come alongside with that?
Well, I think on the change that this references, I think the prior question, in terms of disclosure, you'll see
what I
would call fee related perpetual capital net performance fee revenue that qualifies under the criteria you mentioned move into FRE and it will be distinguished for management fee revenues in the non GAAP P and L. So you'll have that clarity. I think on capital allocation, the short answer is today, we're we like and we're committed to our distribution policy.
Rob Lee of KBW. Thanks for taking my questions everyone's questions. First question on tech ops. So as the firm has done a very successful job of creating new product lines, new categories at different return profiles, To what extent do you actually run the risk of crowding out PAC ops as there's more overlap potentially with different strategies and different funds in different places? And how do you kind of manage that risk?
Well, I would
say, and David did a good job describing it, it's a big investment world. And there's so often things that just don't fit in other parts of the firm. So some of these preferreds and companies that have participations, a sponsor wants to do a recap, wants to keep the upside, can't borrow enough, needs to get something between debt and equity. PAC ops is perfectly positioned for that. There's a bunch of legacy structured finance, specialty finance businesses that don't necessarily fit in GSO or private equity.
Again, TACOPS is perfect for that. So we haven't found to date that it's been a problem. If anything, what comes off the rest of the investment businesses creates a lot of opportunity. And as a firm, the real thing that's changed is before we were just in these high octane, octane opportunistic real estate, private equity business and so much of the investment world we didn't look at. Now when somebody comes in, we can talk to them about a range of everything.
We can talk about senior debt, junior debt, preferred, participating preferred, control equity, blitz and tac ops, there's some minority private equity, which we wouldn't do elsewhere in the firm. So we're not finding investment vehicles.
And they can also play in non securities. They can buy ships and spectrum and insurance policy and royalties on patents and things like that. So there's a lot of non security stuff that no other fund is going to touch.
Thank you. And maybe a question for Steve, been pretty quiet up there so far. So I'm just kind of curious, given your view of the world as you look at, obviously, whether it's potential trade war with China, whatever it may be. What do you see as the major or anything out there that keeps you awake at night in terms of the direct catalyst over the next couple of years?
Well, I was up at 4:30 this morning. So obviously, things do keep me up at night or at least wake me up early. That I wanted to say before I answer that, just thank you for everyone being here today and investing with us or analyzing us. And it's a privilege to have you here. But for me, just sort of watching my partners and colleagues perform It's an astonishing experience.
Such gifted people, such well conceived businesses, such enthusiasm, such integrity, such intelligence, such remarkable people, 6 tenths of 1% joining the firm. You can't imagine that. I mean, Harvard's 5.5, and most people think it's hard to get into Harvard. I didn't do it. What are the Schwarzman Scholars?
Schwarzman Scholars is 35. You know, but, you know, it's it's amazing what what we've done. And I'm in awe of of the people who work at the firm, and what we did. I think this is the quietest I've ever been in my life other than being on a boat alone. So so so, you know, but it's fun for me to listen, whether it's Michael, John, Tony, everyone who's presented.
It's it's an astonishing life's work, if you will. It's pretty amazing. In terms of what keeps me up, I think the global economy is quite good, led by United States, where the whole de control, deregulation trend as opposed to the previous trend is a really good one. The tax reform is a bit front end loaded, but it's paying real dividends. And if you look at unemployment being at record lows, confidence being at record highs, really, it's sort of easy to have a very positive conclusion.
But there are like all times in the world, there's always odd stuff going on, you know, whether it's geopolitical stuff is what worries me the most. You know, you look at odd things like Turkey, you know, sort of blowing apart over one person. You know, you've got some really bad outcomes there. And even though you have a wonderful government in Argentina with President Macri, you know, they're they're really going through, you know, sort of a suffering there, despite the fact that they've improved their deficits. But on a broader sense, you know, sort of the nationalism, the tribalism, the breaking to to either the right or the left in the developed world is concerning as a trend.
There used to be centers in almost every democratic country. And now the concept of the center is really being tested. And as things lurch from right to left, populism grows, you could end up, not particularly for Blackstone, but more for business communities in the broadest sense with some outcomes that aren't as expected and not as predictable. And so this area, rather than the laws of normal supply and demand, I think, are the biggest risks that we face. And we spend time, I spend personal time on these because I like to flow to where I see, you know, sort of the stuff that can affect us, you know, the firm and as as a country.
And and I I I think these are these are big trends. And, you know, almost every country is dealing with it. And you you can go over in Europe and every other place, and and, you know, US has its own version. But, you know, I think one of the challenges for for people of, you know, sort of the next generation, if you will, and our generation, in the business community is find a way to have some normalization. It's going the wrong way, I think.
And leave aside all the good metrics. Good metrics are here for the moment. And they'll stay for a while. And I think we've got forward momentum in the United States. Certainly, for the next few years, I don't know when that game ends.
It usually ends with some event that you didn't plan on. You can have a normal business cycle or you can have other things that interrupt it. And so we're you know, we got some fraying for geopolitical reasons that, you know, hasn't yet been reflected in the numbers. And I think we're going to have to find a way to move that back. Anyhow, that's probably a longer answer than you wanted about what concerns me.
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