Good day, ladies and gentlemen, and welcome to the Blackstone 4th Quarter Year End 2017 Investor Call. My name is Derek, and I'll be your operator for today. At this time, all participants are in a listen only mode. We shall facilitate a question and answer session towards the end of the conference. However, you may press star 1 and put yourself in the question queue at any time.
And we request that you please limit yourself to one question and one follow-up. At this time, I would like to turn the conference over to Mr. Weston Tucker, Head of Investor Relations. Please proceed.
Great. Thanks, Derek, and good morning, and welcome to Blackstone's 4th quarter conference call. Joining today's call are Steve Schwarzman, Chairman and CEO Tony James, President and Chief Operating Officer Michael Chay, our Chief Financial Officer and Joan Solitar, Head of Private Wealth Solutions and External Relations. Earlier this morning, we issued a press release and slide presentation, which are available on the Shareholders page of our website. We expect to file our 2017 10 ks report later this month.
I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10 ks. We will also refer to non GAAP measures on this call and you'll find reconciliations in the press release. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in a Blackstone fund.
This audio cast is copyrighted material of Blackstone may not be duplicated without consent. So a quick recap of our results. We reported GAAP net income of 7 $63,000,000 for the Q4 $3,400,000,000 for the full year. Economic net income or ENI per share was $0.71 for the quarter and $2.81 for the full year and that full year amount was up 41% due to strong growth in both performance fees and fee related earnings. Distributable earnings per common share were $1 for the quarter and $3.17 the full year, both up sharply.
We declared a distribution of $0.85 to be paid to holders of record as of February 12, and that brings us to $2.70 paid out with respect to 2017. And with that, I'll now turn the call over to Steve.
Thanks, Weston, and good morning and thank you for joining our call. Blackstone reported a superb set of results for the 4th quarter, capping a record breaking 2017. Full year economic net income rose over 40%, as Weston mentioned. Distributable earnings rose over 80% to $3,900,000,000 resulting in our best every year of aggregate cash distributions to shareholders, which we believe exceeds the capital returned by any other public money manager to its shareholders. Our capital metrics in 2017 were simply off the charts.
We took in $108,000,000,000 of capital inflows. We returned over $55,000,000,000 to our limited partners through realizations. And we deployed over $50,000,000,000 around the world as we continue to extend our global platforms into new strategies, creating many new investment opportunities. In each of these areas, capital inflows, realizations and capital deployed, Blackstone set quarterly and full year era records, both for the firm and for the alternative sector as a whole. We ended the year with total assets under management of $434,000,000,000 up 18% year over year.
The scale of our operations today is really extraordinary and something I couldn't have imagined when I started this business with my partner Pete Peterson 32 years ago. Today, Blackstone is the largest manager globally and the reference institution in the high returning alternative sector. We've established the most powerful brand among limited partner investors and have earned their trust over decades by delivering great performance with very limited actual losses of capital. As a result, our LPs are giving us more of their money to manage for both existing and new products as we expand our capabilities further along the alternative spectrum. Having built a dominant global franchise in the highest returning categories, such as corporate private equity and opportunistic real estate, this is the logical next stage of the firm's development.
These new areas include more stabilized real estate such as core plus longer dated private equity, infrastructure, high grade credit and other areas. We can leverage our existing global teams and create new products to create a broader menu of solutions for limited partners. The marketplace for some of these products can be much larger than where we focused historically. And the size of investments we can make here is also much larger. In addition, LPs often allocate more capital to these areas.
And this is why despite the nearly fivefold growth in Blackstone's AUM since our IPO 10 years ago, I remain quite optimistic about the firm's prospects. We have more promising large scale new initiatives underway today than ever before in our history. For example, as Tony mentioned, a few weeks ago, we launched Blackstone Insurance Solutions under the leadership of Chris Blunt, the former President of New York Life's Investments Group. There is an estimated 23 $1,000,000,000,000 that's with the T, of insurance assets globally, a vast largely untapped market for us and for just about anybody else except strictly high grade sellers of product. Chris will lead the effort to provide a range of bespoke investment solutions from high grade private credit to traditional alternatives, including the option for full outsourced management of insurers' investment portfolios.
We are exceptionally well positioned to address this market, and I believe we can build a business well in excess of $100,000,000,000 of AUM over time. We're off to a great start with the $23,000,000,000 portfolio and investment management agreement with Fidelity and Guaranty Life, a portfolio company in our tactical opportunities area, as well as our Harrington partnership with Axis. In addition to insurance, our infrastructure initiative is moving forward. We're still a few months away from our first close and it's too early to provide an estimate for that yet. But as you know, we have up to $20,000,000,000 commitment from a sovereign investor, which will flow into AUM as matching capital is raised.
We ultimately expect this platform to be the largest of its kind in the world. In our real estate core plus area, we launched our European strategy a few months ago, which mirrors our U. S. Strategy. We also won the mandate to manage Logicor, the European warehouse business recently sold by our BREP funds.
As you may recall, we built this platform through over 50 acquisitions in 17 countries, culminating in the largest private real estate sale in European history. This sale was a tremendous result for our investors, but the story doesn't end there. Given our favorable view of logistics globally, our familiarity with these assets and the strength of our team in Europe, the buyer subsequently asked us to manage Logicor for them on a long term basis. These successes bring our global core plus strategy to over $27,000,000,000 When we launched this business a few years ago, I shared my vision, it would eventually reach $100,000,000,000 I got a little bit of resistance to that from people around the firm. But I think we're well on our way and I think we're going to do it.
In addition to new strategies, we're layering on additional distribution capabilities to access more investor channels, including broader outreach to the wirehouses, private banks and independent brokers among others. We're developing new products specifically for those channels. For example, our non traded REIT, BREIT, had an outstanding debut year, raising $2,000,000,000 since its launch last January. In our hedge fund area, our individual investor solutions platform now manages over $8,000,000,000 And in credit, we just launched our 1st interval fund, which can be offered continuously to a broad universe of investors. The interval fund structure allows us to translate some of the key benefits of less liquid often privately negotiated alternative credit into vehicles that are more accessible for individuals.
At Blackstone, our entrepreneurial culture means we're always inventing new things in the interest of our limited partners. It's a core confidence of the firm. Even as the firm has grown, we've remained totally focused on delivering attractive investment performance in everything we do. It's the key to success in the future. We never lose sight of why LPs put their trust in us.
We're often asked if size will be the enemy of returns. But as we continue to demonstrate, scale is not a disadvantage in our business. Last year, we delivered strong returns across the board, including our real estate opportunity funds, which appreciated 19 0.4% versus 5% for the public REIT index. I'm going to give you that one again because all these presentations are always a blizzard of numbers. But imagine appreciating in real estate 19.4 versus 5 for the public REIT index.
So we're like 1400 basis points over the standard measures in something like real estate. It's pretty amazing. And our corporate private equity funds appreciated 17.6%. Our underlying portfolio companies, as Tony mentioned, are performing well against a healthy backdrop of strong economic growth and improving confidence. And I remain quite optimistic about the forward outlook.
As I stated on this call last year, some of the major changes that have been underway in the United States such as tax reform, as well as the efforts to remove or reduce regulatory barriers were designed to accelerate GDP growth and extend the business cycle. We're certainly seeing that today and I believe that will stay the case for some time. These changes are also improving the relative attractiveness of the U. S. Market, which I will believe will drive greater foreign investment, something that's a little overlooked, I think, in most of the commentary on the tax reform measure.
We will also see the repatriation of significant amounts of cash held overseas by U. S. Companies, much of which will be reinvested and used in other mechanisms, as Tony said. All of this should serve to further benefit the U. S.
Economy and potentially extend the equity rally, which has really been unbelievably powerful, about 6% just in the 1st month, which I don't think can be annualized. Better growth will also benefit our portfolio companies and fund returns, which are principally driven by the cash flow growth of our assets. Although robust markets pose challenges for investing, particularly for U. S. Opportunistic deals, we're actually able to do more deals than ever because of our broader product mix.
Today, we can find and invest in value basically anywhere in the world. Michael will discuss our deployment in more detail. Over the past few years, for example, the entire firm has tilted towards Europe, which comprised nearly 40% of our investments last year and that looks backward looking like it was a very wise thing to have done. We started this shift several years ago before the recovery gained momentum and people were still questioning whether European Union would continue to exist. While we've largely moved past those concerns, Europe is still early in its recovery and some remaining dislocation still remains in certain regions.
Overall, I feel great about and our ability to navigate the current environment. I think Tody mentioned in our private equity area that we just signed an agreement to purchase the Thomson Reuters business, which is $20,000,000,000 scale investment that I think is the largest private equity investment since the global financial crisis. In conclusion, the firm is operating at an incredibly high level. We continue to deliver attractive returns to investors, which is our mission. And we're doing it across more funds, more asset classes and more regions.
We're staying disciplined in finding interesting ways to deploy capital, creating the basis for favorable future realizations. All of this leads to Blackstone being a significant cash generator, which is our shareholders you benefit from. Since our IPO, if you reinvested our distributions into Blackstone stock, you'd have a cumulative return of over 120% in the last 10 years. Could be better, could be a lot, lot worse, 120% over 10 years. Our 2017 dividend of $2.70 per share equates to a 7.4% yield on our current stock price, which is one of the highest of any large company in the world, particularly among those that are A plus rated.
As the largest shareholder, I personally can find this to be compelling. And I think Blackstone and our shareholders alike have a lot to look forward to. I've never been more excited about the future. And in that regard, I agree with Tony completely. We've got so many exciting things going on here, so many remarkable people at the firm, such good investment processes and such a unique ability to anticipate where the world's going and create new products, it's really lots of fun to come to work every day.
And now, I'd like to turn things over to Michael Che, who hopefully is having as much fun as I am.
You can tell I'm having lots of fun, Steve. Thanks, Steve, and good morning, everyone. Our 4th quarter results represented a great finish to an exceptional year. Revenue, economic net income, distributable earnings and fee related earnings all grew strongly in the quarter, including a near doubling DE to $1,240,000,000 one of our 2 best DE quarters ever. Full year results were even more impressive.
Revenue rose 35 percent to $6,800,000,000 driven by 67% growth in performance fees and investment income, while economic net income increased 41 percent to $3,400,000,000 Fee related earnings rose 21 percent to over 1 point $2,000,000,000 for the full year or $1.03 per share, trending favorably to the high end of the path we outlined on last quarter's call. Management fee revenue rose 12% and FRE margin expanded by 310 basis points to 44.6%, our highest ever for a calendar year. Distributable earnings increased 83% to $3,900,000,000 also a record, with 2 of our 3 best quarters falling during the year, both of which produced $1 or more per share of DE. As you know, our business model is powered by simple virtuous circle inflows, deployment, value creation and harvesting. Over the past 4 years, the metrics reflecting these cornerstones of activity have been remarkably robust, dollars328,000,000,000 of inflows, dollars 133,000,000,000 of deployments, dollars 85,000,000,000 of appreciation and $183,000,000,000 of realizations.
This has enabled us to deliver nearly $13,000,000,000 in distributable earnings over that time period or an average of $3,200,000,000 $2.66 per unit annually. And we simultaneously grew AUM by $168,000,000,000 in this period or by 2 thirds and doubled our dry powder. While 2017 was just the most recent period in trajectory, it was our most productive yet across every one of those value drivers. I'll now dig into each of these a bit more. Starting with inflows.
Gross inflows were $62,000,000,000 in the quarter and $108,000,000,000 for the year, including the acquisition of Harvest, which added $11,000,000,000 Excluding M and A, inflows of $97,000,000,000 still represented our best every year, despite not having either of the flagship global breadth or BCP funds in the market. Our previous record year of 2015 included both of those funds, which accounted for over 1 third of that year's inflows. This illustrates an important and powerful trend at the firm that we've moved well beyond the capacity limitations and episodic fundraising cycles of the traditional drawdown funds. There are 4 key drivers to this development. First, we continue to move farther along the risk return spectrum, as Steve discussed, often through longer duration or permanent capital vehicles.
Core plus Real Estate and Core Private Equity together raised $13,000,000,000 last year and now together account for $32,000,000,000 in AUM. 2nd, expanding the regional footprint of existing strategies. In 2017, we raised over $16,000,000,000 of regional strategies, dollars 6,000,000,000 for our 2nd Asia real estate fund, which will soon hit its $7,000,000,000 cap, dollars 1,600,000,000 for our 1st Asia private equity fund, which we expect to hit its $2,000,000,000 cap, the extension of Core Plus into Europe and the final close of our 5th European opportunistic real estate fund, which reached nearly $9,000,000,000 3rd, our newer strategies continue to scale with large successor funds as well as new adjacencies. TACOPS and strategic partners, for example, together raised $8,000,000,000 last year, bringing them to a combined $43,000,000,000 of AUM. 4th and very importantly, the emerging high growth distribution channels of retail and insurance, which Steve discussed.
Retail comprised $12,000,000,000 in inflows in 2017, more than 70% of which came from products customized exclusively for this channel. In insurance, our investment management agreement with FG covering over $22,000,000,000 of AUM provides us a formidable anchor position from which to build out this effort. This AUM is sticky long duration capital with recurring management fee stream. Over time, a growing proportion will be invested in Blackstone funds. The prospects to significantly grow this business as an evergreen source of capital for the firm are compelling and it's just one part of a broader multidimensional insurance strategy.
Most insurance companies have very small allocations to alternatives today, and we're confident we can create solutions to lift the returns with our combination of products and scale. Next, deployment. We invested over $50,000,000,000 for the full year, including $20,000,000,000 in each of our Private Equity and Real Estate segments and $10,000,000,000 in our Credit segment, which was a record for each of those segments. And we have over $12,000,000,000 of investments signed but not yet closed, so we entered 2018 with considerable momentum. How are we doing it?
This large number is in fact spread across a broad spectrum of strategies and risk return profiles. So within Private Equity's $20,000,000,000 segment deployments, we had $9,000,000,000 in 20.17 of higher octane corporate private equity investments focused on situations where there is a compelling opportunity for operational intervention value creation, most recently illustrated, as Steve alluded to, by our agreement this week to acquire Thomson Reuters Financial and Risk Business. Dollars 1,500,000,000 were in long duration high quality core private equity investments, dollars 5,000,000,000 in Tac Ops' flexible mandate to uncover attractive risk adjusted returns in the eclectic places they hide all around the world, and $5,000,000,000 in SP's leading secondaries business, which spans buyouts, growth equity, real estate and infrastructure. Similarly, within Real Estate's $20,000,000,000 of segment deployments, dollars 6,000,000,000 of opportunistic, over $9,000,000,000 in our Evergreen Core Plus platform, $1,400,000,000 in BREIT and nearly $3,000,000,000 in real estate debt. Blackstone's growth and diversification allow us to do 3 things at once: provide more complete solutions to our clients' needs across their portfolios, to leverage and extend existing organizational capabilities into new ones and to provide incremental opportunities that wouldn't have been available to us otherwise as opposed to displacing investments by BREF and BCP.
Indeed, while the firm's deployment of $51,000,000,000 in 2017 was nearly double our 2014 pace by comparison, BREP and BCP together invested a consistent $15,000,000,000 in both of those years actually. And our but however, our investment pace and a version of range of other strategies more than tripled from $11,000,000,000 in 2014 to $35,000,000,000 in 2017. All of this is quite positive in terms of building a diverse store value to drive future distributions. Moving to investment performance, the measure of the ongoing value creation and the capital we have deployed. Across the firm, the funds delivered outstanding performance in 2017.
The real estate opportunity funds appreciated 5.2% in the quarter and 19% for the full year, the corporate private equity funds appreciated 6.8% 18%, respectively. For the year, TAC ops appreciated 15%, strategic partners 23%, core plus real estate 12%, breads drawdown 15%, BREIT 10%, BAM 8% and GSO 11% and 8% in the performing credit and stress clusters respectively. BREP, corporate PE and SP each posted their best return since 2014, BAM since 2013 and TACOPS since inception in 2012. Strong performance across the funds powered $585,000,000 of net performance fees in the quarter and $2,200,000,000 for the year. As a result, the performance fee receivable on the balance sheet was stable in the year with that $2,200,000,000 in net performance fee accrual nearly accrual nearly matching the $2,300,000,000 in net performance fee distributions.
Said another way, the unrealized value we created in 2017 fully replenished the firm's store value even as we paid out more cash than ever before. Finally, on realizations, which were $19,000,000,000 in the 4th quarter and $55,000,000,000 for the full year. The breadth of our sales activity was immense with 240 discrete realization events in 2017 across the firm and around the world. These included the largest private sale in the firm's history, Logicor, plus multiple other private sales. We also completed 37 equity transactions totaling $12,500,000,000 in the public markets, including the continued sell down of our stake Hilton.
And we executed $50,000,000,000 of portfolio company refinancings during the year. The firm's ability to achieve monetizations through so many different means is a key driver of value delivery for our shareholders. I'll now key driver of value delivery for our shareholders. I'll now wrap up by touching on 2 discrete topics of note. First, with respect to our direct lending efforts, as previously announced, we will conclude our sub advisory relationship with Franklin Square in the 2nd quarter, affecting $20,000,000,000 of AUM with a net impact to FRE in the year of approximately $50,000,000 We view this decision as compelling from a financial and strategic point of view.
The $583,000,000 of pretax transactional payments we will receive will significantly exceed earnings foregone as we ramp our new platform over time, and we are confident that we will replace and ultimately overtake the prior level of revenues and earnings. We will do so by having sole ownership and control over our platform, allowing us to fully leverage 3 powerful assets of Blackstone and GSO. First, our leading direct lending franchise and origination platform second, our extraordinary institutional LP base, which we will now be able to tap into for this strategy And 3rd, as both Steve and I touched on earlier, our rapidly growing internal retail distribution capabilities in our Private Wealth Solutions area, the same capabilities that we leveraged this year with B REIT to capture an estimated 45% share of the non traded REIT market, which draws from similar channels as in the BDC market. We expect the separation date and initial receipt of proceeds to occur in the Q2. We anticipate that a substantial institutional capital base will be put in place and activated in parallel and that subsequently will enter the BDC channel later this year.
As to the use of transaction proceeds, we'll provide specifics in the Q2. Finally, on the impact of tax reform. At a high level, the new law won't result in any fundamental change to our business model in terms of how we make investments, finance our deals or our competitive position in the market. At the portfolio level, we expect a net positive benefit overall. In Private Equity, the direct impact varies by company.
Some benefit materially. For a broad group, it is basically neutral and almost not appear to be materially adversely impacted. In real estate, our holdings are generally unaffected directly at the asset level by the legislation. And in credit, we expect our borrowers to be impacted in a similar fashion to our corporate holdings. With regard to credit markets more generally, tax reform should in theory moderately increase the cost of debt relative to equity, but we don't expect it to fundamentally change demand for credit or ability to deploy capital.
Perhaps even more impactful are the potential second order effects on economic growth and business activity that could arise from this legislation, as Steve discussed, from which our companies are well positioned to benefit, we believe. As it relates to our structure, the resolution of tax reform gives us a clearer picture of the cost of converting to a C Corp. That cost must be weighed against judgments about the magnitude and sustainability of potential market benefits. These judgments are not an exact science and we will continue to evaluate the issue, take into account any new information and developments. So in closing, while 2017 is a tough act to follow, we entered 2018 with exceptional momentum.
We have never been better positioned as a firm. Our brand culture, track record and capacity to innovate have never been stronger. And we are in the early days of attacking newer channels for products of enormous potential scale. These are indeed exciting times for the firm. With that, we thank you for joining the call and would like to open it up now for
Our first question will come from the line of Michael Cyprys, Morgan Stanley.
Hi, good morning. Thanks for taking the question. Just thought maybe to start off on tax reform. It sounds like you're evaluating sort of the puts and takes there. So just curious how you see the impact to say your 2017 earnings if you were a C Corp?
What sort of tax leakage? Would there be just if you could help flush it, how to quantify that? What the tax rate would look like? And then just broadly how you're thinking about the puts and takes around potential for multiple expansion if you were or a broader investor base, shall I say, if you were to move into a C Corp?
Sure, Mike. It's Michael. And you put out a nice report on this yesterday. Look, I think stepping back, as you know, this involves a cost benefit analysis, all in the context of what's best for our shareholders over the long term and on a sustainable basis. And the tricky thing about that cost benefit analysis is, as you know, the cost is known and quantifiable now.
And the benefits are not precisely quantifiable before the fact. So on the cost side, specifically to your question, Mike, with tax reform and tax rates now settled, we can do that math. The leakage on a DE per common unit basis is in the teens on a percentage basis. That varies based on the mix of character of income in a given year as you know, but that's the area. And look, on the benefit side, as we discussed, we're going through judgments and assessments of a lot of different factors.
And as you said, it's all in the context of what the multiple expansion would be required to generate the sort of long term benefit to justify this decision. So we're thinking through that carefully. We think more time and information will benefit our judgments on this and we don't view this as a race.
Great. Thanks. And just as
a follow-up, if I could, with the transaction announced yesterday, the largest deal since I believe since Hilton. Just curious how you're seeing some of the opportunities there around data, just broadly that you're seeing out there in the marketplace opportunities to use data technology automation to companies, industries ripe for change and disruption? And as you look across your company today, do you feel you have all the capabilities and toolkits to accomplish that? Where do you think you needed to expand your expertise
with anywhere?
Yes. Okay. So Mike, it's Tony. Yes, we're big believers in data. In fact, as we speak, our entire private equity group is in everyone from down from Joe Baratta down to the most junior guys is in Palo Alto attending something called Singularity University and getting steeped in new technologies, technology disruption, use of data and so on and so forth.
We've also built an internal data group, which is now participating with all of our different groups in bringing big data applications to the investment process and mining our own starting to mine our own portfolio companies for data that has value both in terms of our own investments and potentially third party market value. We're big believers in data and that's certainly a driver behind the Thomson Reuters business. The most valuable part of that business by far is the data part. The terminals are the legacy business for which people think of them, but that's not where the future of that company is. Having said all that, I think this is a journey that we're just beginning.
And while we've got a team, it'll take more investment in the team, it'll take somewhat of a cultural change, it'll take education around our people, It affects all of our businesses, not just the investment side of the businesses, but how we do things internally and processes. For example, we're starting to use AI to screen job applicants and some things like that. So we want to be the leading firm in our industry in the use and application of technology and data.
Great. Thanks very much.
Your next question will be from the line of Ken Worthington, JPMorgan.
Hi, good morning. Thank you for taking my questions. First with tax reform done, the congressional priorities seem to be turning to infrastructure. Maybe talk about how a major infrastructure package from Congress would impact your aspirations in infrastructure. And what I'm really hoping to hear is how you can help me connect the dots between what Congress can accomplish in legislation and how that helps you find opportunities to invest and generate excess returns?
Thanks.
Yes, sure. This is Steve. I'll take that. The U. S.
Is estimated to be roughly $2,000,000,000,000 minimum short in terms of what's optimum to have in infrastructure. And I think in the State of the Union, the President mentioned that he had a proposed package of $1,500,000,000,000 For people like ourselves in our fund, we've geared it to the private sector, because it's very of what the President mentioned. The first was timing. The U. S.
Is the slowest I can't say it's the slowest country in the world because I haven't surveyed every country, but it's completely an outlier in the developed world. It takes typically 10 years or more to get things approved In Canada and Germany, for example, it's 2 years. So we're 5 times less effective, which increases the cost of everything that gets done, discourages people from undertaking projects and basically limits the asset class in that test. And of course, not all things the government do could be bought by the private sector because a lot of them don't have cash flow. But to the extent that they do, this provides additional opportunities to put money out in scale.
And that would be a could only be, I believe, my General Counsel may be jumping up and down, but can only be a good thing in principle to have more opportunities of different types. And the question is how much money will go into this. So the proposal, I think, is a mixed 1 $500,000,000,000 number. We're in the private partners focused public private partnership, and that would be sort of a cherry on a sundae for us. We sort of have the sundae in terms of what we think we're going to be doing in the private sector, but it's only upside, if you will, from more things to finance.
But particularly, if they can agree on just the efficacy of doing infrastructure, try not to make us the least competitive country in the developed world. Give us a shot And that's got to be very good for this overall asset class.
Ken, I'm going to chime in. I just look at it from the perspective of the fund and not so much the country. We don't need any improved legislation or regulatory system to invest this fund really well. There's tons of existing assets out there. One of the defining characteristics of some of these infrastructure assets, many of which are in protected industries or regulated industries, by definition, the structure of a true infrastructure business gives it a quasi monopoly.
And many of those companies are actually rewarded based on what they have invested after all their costs are covered. So there's no incentive at all for companies to be run better and sharper and crisper and that's just not the environment that they exist in. So we think that there's tons of targets out there where we can bring our value creation capabilities, which are honed in highly competitive private sector industries and apply it to this industry and create tons of value, even in the existing regulatory scheme. What Steve talked about would be fantastic. I'm all for it.
And I think we're getting both, when we talk to both Republicans and Democrats, no one wins with this ridiculously slow system we have. But I think there's tons to do even without it.
Great. Thank you. And just for a follow-up, in terms of real estate investments, so I think $11,000,000,000 invested this quarter, big number, largely in BPP and some Europe from what I saw. Can you talk about the outlook for investment in the flagship sort of U. S.
BREP area and maybe estimate the value of the pipeline announced but not yet closed for BRAF 8? I don't know if you give that kind of detail, but I thought I'd try.
Well, I'll let Michael think about the specific number on the pipeline. But look, it's since the great financial crisis, values have certainly recovered and we're a value buyer. I would say that we've shifted our focus from one off individual assets more towards under managed companies and some things like that undervalued companies. We just announced a big deal in Canada as you saw. So we're finding things to do, but they'll be lumpy and large scale where we maximize some of our advantages visavis other buyers.
So the pipeline is smaller, but still we got some interesting things in it.
In terms of the committed not yet deployed number, Ken, for real estate, I cited over $12,000,000,000 real estate is about half of that.
Okay. Thank you.
Your next question will be from the line of Bill Katz, Citigroup.
Okay. Thank you very much for taking the questions this morning. I apologize for a hoarse voice here. Just can you, Steve, perhaps talk a little bit more about the opportunity in insurance? I think you mentioned you think this could get to be $100,000,000,000 business for yourself.
Talk about maybe the slope to getting there and then sort of how you see the economics from that. Is it just an asset allocation opportunity like some of your peers are doing? Or is it an opportunity also to manage some capital and how much of a revenue pickup could you get from that?
I think the answer is both. It's really interesting when you have an asset class in difficulty because of combination of low interest rates almost across the world, as well as a very restrictive regulatory environment that discourages higher return products even if they're safe. That's what happens sometimes in the regulatory world. And we think there's an opportunity for us to help manufacture products. We probably we are the largest generator of fees in the financial world.
We generated last year, I think, somewhere around $160,000,000,000 $170,000,000,000 of financings on our different products internally. We have a unique range of things that we do from real estate and creation of a lot of debt on that real estate, private equity, in our credit products. And all of these can be, we believe, adapted or customized to create product to satisfy the needs of increased return with safety for this asset class. And to the extent that we can do that, which we think we can, why wouldn't you want to do enormous amount of business with us if it increases your return and you're in the insurance area and you think it's safe, because it is. And so we look at this as a very, very large potential set because there's almost no insurance company that isn't to some degree or another suffering from the low yields and the regulatory reserve requirements that makes life really difficult for them.
So it's really an issue of manufacturing on our end rather I think than marketing per se.
Bill, let me give a little more color on that. I think there are there's kind of 3 things we bring to the party. Number 1, of course, we bring our existing products to the party and they're all, as Steve mentioned, under allocated to alternatives in general. And part of that is cultural, part of that is historical and part of that is kind of regulatory and capital. But the first thing we'll do is be able to offer them higher returns at a lower risk to our core products.
And of course, those are those will have the usual fees and carry that we usually charge. The second thing is they're all short of private creditworthy assets. So investment grade private assets. Why private? Because private debt for the same credit risk yields a significant yield premium.
And that yield premium is very important to them. For the most part, insurance companies do not have their own origination. We have origination. That is what GSO does. It's what our real estate debt business does and so on.
And in fact, in our equity businesses, we're creating the very kind of paper that they want, but instead of having a place and a set of investors to give it to, we're selling it into the market. So we're already creating billions and billions of paper that they're short and we're long. So it doesn't take a genius to put those two things together. Thirdly, we're able to we have some we worked on this with some of our existing insurance clients. We have several proprietary structures that other people have not done that embed our products and structures, which give much better regulatory and rating capital treatment for our kinds of products.
No one else is doing this. Frankly, no one else has the mix and the breadth of products to do it. And so we bring this new technology to the insurance companies that allow them to put a lot more of their balance sheet into our products than they otherwise could without hitting their ratings and capital. So I think we have a very, very powerful product mix and I think this could be huge over the years.
Okay. That's exceptionally helpful. Thank you so much. And then just a follow-up, Steve, on some of the traditional asset management report before you, there's been some discussion of migration back out of alternatives back into more traditional product. But yet when I see your results and some of the peers have reported, it's sort of hard to sort of see that on a real time basis.
Are you sensing any type of cap in terms of where the LPs are? I know at your recent launch with investors, you had mentioned that some of these caps are being raised to accommodate franchise like yourself to have a global perspective. But are we any at a point where this is as good as it gets? Or do you think that there's still room to go on the institutional side to grow the business?
Yes. It's a good question. I don't see those caps. And what's happening is, it was interesting, I was with somebody who runs a very large, own largest funds in the world and he was at Davos and he was saying, Jeez, you're by far our largest GP, but this is just so amazing operating with you. We just keep expanding and you're sort of in a class of your own.
And so we're not seeing that kind of friction at this point. You have to remember, we're in so many different businesses and each business line we're in, we just don't invest in one thing. A fund will normally have, if it's a private equity fund, it will have 50 different investments, same with a credit fund. So the market is quite knowledgeable and sophisticated that there's lots of diversification in terms of risk. It's not the same as different types of sort of money managers in that sense.
So I think we're feeling pretty comfortable. And in fact, we have a steady stream of dialogues where people are contacting us who are LPs who want to make major increases in their size as part of what's a term of art, I guess, strategic partnerships. And these are very large, chunky kinds of things that lock in relationships, where it's not necessarily just, hi, I've got a fund, please buy my fund. And so in that sense, I would say it's sort of going the opposite of what your concern is.
Hey, Bill, there's plenty of industry surveys that survey LP intentions and they all show LP is putting more in alternatives and the fastest growing segment of alternatives is private equity.
Got you.
And can I
just flip one more question? I apologize. I know you said 2, but I don't use it to that. Mike, you had mentioned that you sort of studying the cost benefit analysis and I certainly appreciate what you know versus what you don't know. So from our perspective, obviously, a lot of time to figure
this out. We know the specifics now of
the tax reform. What milestones should we be thinking about that, reform. What milestones should we be thinking about that get you to figure out which way to go, whether it's a converter stays at PTP? Is it just how the stock behaves? Is it potential inclusion index, dual structure of the company?
So we're trying to understand like where from here we should be thinking about in terms of key points of decision making?
Yes, Bill, I wouldn't think of it in terms of concrete milestones. There's a variety of factors and we're going to assess them over time.
And Bill, there's no rush there's a little bit the market's having a rush to judgment here. This is the decision we make once and it's forever. So, as Michael said, we're not in any rush to make it.
Okay. Thank you very much for coming in the questions. Yes. Thank you.
The next question will be from the line of Craig Siegenthaler, Credit Suisse.
Thanks. Good morning, Steve, Tony, Michael. Just wanted to come back to the insurance business. Can you talk about your ability to use FGL as an acquisition vehicle for smaller insurance companies in closed blocks? And then also what is the appetite to replicate this strategy in Europe where leverage ratios can go even higher?
And then like the final part of the question is really what are the incremental margins on this business as you grow revenue and really kind of scale it?
Okay. So, first of all, we are in the business of continuing to acquire insurance companies and closed blocks, not necessarily through FGL, although it could happen there. But we have several insurance vehicles, number 1. Number 2, yes, Europe and Asia are both definitely on our radar screen. And number 3, this is one of those businesses where I actually think it's kind of a lower fee business, but a higher margin business like so many of our other businesses, where once you get over the startup costs, it's a very high incremental margin.
I'm not going to quantify that for now.
Thanks, Tony. That was it for me.
Thanks, Craig.
Your next question will be from the line of Alex Blostein, Goldman Sachs.
Hey, good morning, everybody. A question for you guys around the private equity deal structures and really dovetailing on the Thomson Reuters deal announced a couple of days ago. So as we look out, obviously, very significant deal, the largest since in several years. You guys expect the size of private equity yields to increase in the coming years relative to what we've seen? What are you seeing in terms of leverage and availability of leverage?
And I guess more importantly, should we think about more partnership type of deals like we saw with this one that would really enable to write larger size transactions?
Sure. So, one of the advantages of having a large global multi sector fund is we can go where the opportunities are. And historically, you've probably seen we'll do some sort of startup investing, whether in different areas of the world or different industries, drilling oil wells or whatever, all the way to the biggest buyouts. And we'll do it across regions and we'll do it across sectors. And that ability to go where the opportunities are is really important for our being able to sustain high returns.
An important element of that is being able to do deals that are very, very large because sometimes that's where we find the best opportunity. In general, American business has gotten more efficient. So, all of as I've talked before, even in this call, all of the value that we bring pretty much to our investors is value we create operationally. So we're looking for things where we can go in and make a significant difference to the management of the company. In this case, Thompson Family believed that we could add a lot of value and that they wanted to participate in that value with us, which is why they stayed in for almost half of the equity.
And so I think that's a win win. I do think you'll see some other large transactions. The debt markets are very liquid, very robust. Interest rates are low. And in fact, in Thomson Reuters, we probably could have gotten more debt than we did, but we always like to have prudent capital structures.
It's not about maximizing leverage. So yes, I think there'll be some other big deals, but
I don't think it'll be
a wave of them because each we're looking for deals, not that we can just buy, but where we have to create a lot of value and that's not always the case obviously. And then, yes, the industry has changed. LPs have become increasingly interested in side by side and co investments and they've become increasingly capable of making the decision with you almost as a partner or a co sponsor from the get go. So that is definitely here to stay in my opinion.
Got it. And then just a quick follow-up for Michael. I think back to the tax rate conversation, I think you said something in the teens in terms of the earnings leakage. I think you said it on the DE. I just want to confirm that that's roughly the same under E and I.
And should we think about the kind of 20% low 20% is a kind of reasonable corporate tax rate if you guys were to convert into C Corp given the 2017
mix? Well, it is in the teens for E and I as well and it depends just as it does on DE on the mix of the character income in a given year.
Got it. Thanks.
Thanks, Alex.
Your next question will come from the line of Glenn Schorr, Evercore.
Hello. Thank you.
Just one question on rates. And in the past, I and others have asked the interest rate question and got the right answer of, hey, if it's coming brought on by global growth, that's a good thing. In the past, real estate actually did better. And I think that also holds. But my question today, a year later, 2 years later on 275 on a 10 year and rising, watching REIT markets, the public REIT markets significantly underperform your private real estate strategies.
I'm curious if there's any revisions to the answer on to higher interest rates matter. Are you seeing any changes in demand for any of your products as rates rise?
So it's Tony. No, I think the answer still holds. We feel very good about where we are in the cycle. And yes, while rates go up, because the Fed, I mean, look, they left rates flat this meeting. They're very, very careful about raising rates and they're doing in response to economic growth.
A lot of people would say the U. S. Economy is doing extremely well. If we look at through the eyes of our portfolio companies or our real estate portfolio investments, things are going great. So I would say that the Fed is being extremely cautious.
And as a result, I feel very good about the economic backdrop creating more value than the higher interest rates would erode. The other thing you should realize is cap rates are a function not only of treasuries, but also of the spread over treasuries. And while base rates are extremely low, spreads have been pretty full here. And so as base rates go up and we've talked about this in the past too, I think spreads have plenty of room to come in a little bit to keep overall cap rates from spiking. So bottom line, same answer we've given and I think it's playing out and you're seeing it.
You're seeing higher rates and yet you're seeing great fundamentals and you're seeing great value creation, all that notwithstanding. And then by the way, when we sell assets, you're seeing great realizations.
I appreciate it. Thanks, Tommy.
Your next question will be from the line of Devin Ryan, JMP Securities.
Thanks. Good morning. Maybe one here just on the retail opportunity. You continue to highlight the expansion of the footprint into new channels and clearly that's going to drive growth. But when you think about from a product perspective where you are relative to maybe where you can be, how should we think about product development in retail over the next several years?
And what additional types of products are you looking to add there?
Sure. So, I think as I've mentioned in the past, the growth is really going to come from 3 areas. So one is continuing to build out channels, number of new distributors and that's continuing and I'd say we're still pretty early stage there. 2nd is penetrating the channels more deeply. And then 3rd is new products.
And even in new products, we're pretty early stage. So I think you're going to continue to see new products. We're going to be launching something in the channel. So it's a floating rate credit product. I know Michael had talked about what's happening with Franklin Square.
Ultimately, I think that could be significant. But very importantly, as we go into a channel with our performance, our ability to onboard and service in a really differentiating way, In many ways, we are the revitalizing catalyst to an entire sector and that's what you saw with the private REIT. So it's a little bit of a mistake to just look at what's there and then what percentage. I mean, I think in many ways, given what we can do in a scale way that others can't. And even in terms of we being product together, we really end up being the catalyst to the growing size.
And so we are seeing more demand for floating rate product, and I think you'll continue to see more launches from us.
And Devin, a couple of other tweaks on that. The products in this market tend to be longer duration of permanent capital products, a lot of them. So it facilitates our shift of our mix to more permanent capital products. And then, I would just say some of these products can be very large in scale. And so, I think the potential for some of these broadly offered retail products is huge.
Got it. Okay. That's great color. Maybe just a follow-up and another kind of bigger picture question. We're obviously all just trying to map out how assets are going to grow at the firm over time here and that's a challenge.
But as you mentioned several times, it's an entrepreneurial culture. I think sometimes the level of innovation at Blackstone is underestimated. And so I'm not really expecting specifics here, but when you look out over the next several years and you think about what the firm is working on today, should we be thinking about kind of that incremental or innovative growth, if you will, coming from adjacent products? Or are there things that are being worked on right now that maybe could represent a new lag like infrastructure?
Yes. So, both is the answer. And there's certainly adjacent products, but infrastructure is a new leg, insurance is a new leg. We've talked about the whole earlier stage growth equity kinds of sector. I'm not going to get too specific on that.
That's a new leg. So 3 major new legs. Truthfully, some of what John is talking about, I'm not sure whether it's a new leg or an adjacency, but it's certainly a different approach. What Harvest shows is there are some long only possibilities. I don't want to go be a normal mutual fund, but niche long only businesses, I think you'd have to put in the new as a new leg.
So Harvest would be a new leg. So I think we have as I said in the press call, as I sit here and I look forward 5 years with existing initiatives where we already either got products or got people hired and focused on this, I see more growth in the next 5 years than I've ever seen in 15 years at this firm.
Yes. Thanks very much. I think that that's helpful and sometimes maybe underappreciated.
Your next question will come from the line of Patrick Davitt, Autonomous Research.
Hey, guys. Good afternoon. Just a quick one on that last floating rate point, Joan. Is this a product that we should view as a competitor to a lot of the traditional active products out there? Or is it more like a floating rate plus type strategy with different return characteristics?
Yes. So it's enhanced floating rate. It's an interval structure, monthly liquidity type product. So it does have a higher return than some of the competing offerings out there currently.
Great. And then my follow ups on tax reform
Patrick, sorry, let me just say, we have a view here. We have a view here that investors are generally pay way too much of a premium in terms of lost return for liquidity that they never actually need. You don't need to have 75 years, center of your portfolio, you could sell tomorrow. So we're our whole strategy has been to sort of build on the an arbitrage and offer our investors the enhanced returns that come by taking not more risk necessarily because we think a lot of our products are less risk actually. And certainly when put in a portfolio less portfolio risk, but less liquidity.
One of the things about today's world is it's overvalued, but it's particularly overvalued on the most liquid stuff. And so there's a gap you can drive a truck through for us.
Awesome. Thanks. And then a quick one on tax reform. Has the increased, I guess, cash flow from your U. S.
Privates followed through to any positive markets yet? Or is that something we can still expect?
Patrick, it's Michael. What I'd say is, for example, the 6.8% appreciation in the corporate equity portfolio in the 4th quarter, that was mostly driven by fundamentals on a company by company basis, not by tax impact. And I think we've been very careful about wanting to factor in tangible directly observable impacts on a company by company basis from this. And with time, the companies themselves will see what the real world impact is on their businesses and on market values and we'll take that into account. Great.
Thanks.
The next question will be from the line of Mike Carrier, Bank of America Merrill Lynch.
Hi, thanks. Good afternoon. Just one question. It's on fundraising. Each quarter, you guys tend to surprise the upside and it sounds like the growth opportunities in front of the firm are substantial.
Some of your peers benefited from sizing up their opportunities whether it's AUM or FRE and realize each firm is different and you guys tend to be more consistent in the level of fundraising. But is there a way to size that opportunity up over the next like 1 to 3 years, whether it's an AUM or FRE, given that many of the growth areas are coming from these innovative new areas that may be harder to predict versus the flagships in the past?
Well, I'm going to
I'll let Michael think about how to answer that while I bullshit for a minute. But we don't like to give projections as you know and certainly 3 year projections. So we like to sort of under promise and over deliver. I think you'll be happy, but you have
to trust us on that. And I'll also bail out a little on the answer, but I do believe that, the growth we see, the character of the growth is a good thing on both FRE and overall
AUM front. And Mike, look, go back 15 years, even through the great financial crisis, we've never had a year where AUM didn't grow ever. And look at the secular growth, over a long any long period of time, there are ebbs and flows, but it's we don't see any diminution
of that secular growth. Yes. And Mike, quite seriously, we don't when we think about strategy and growth, we don't have to make trade offs between FRE oriented growth and AUM generally. We think we can sort of have it all across a whole multiple strategy of products.
I think the answer is that for the last 5, 6 or 7 years, I forget which we've compounded AUM at 17%, at the same time giving back enormous amounts of money. So one might think
that's pretty good.
Okay. You got 3 answers there.
1 for 1.
Yes. All right. Thanks a lot.
Thank you.
Your next question will come from the line of Gerald O'Hara, Jefferies.
Great. Thanks for squeezing me in. And just one question for myself as well. Just hoping we might be able to get an update on the Invitation Homes initiative. I know it's been probably a little while since we've heard on it, but you've got obviously housing markets have been strong over the past couple of years, clearly since you started it or started buying up homes.
And just kind of curious as to where we might be in that cycle? Thank you.
Well, so we got to be a little careful here as public company and so I'll let them speak for themselves. But we think the residential area still has plenty of growth ahead of it.
Fair enough. Thank you.
Your next question will come from the line of Brian Bedell, Deutsche Bank.
Great. Thanks. Hi, folks. Thanks for taking my question. Maybe just 0 back in on the insurance opportunity of that size of the market that you initially quoted, Steve, what do you see as the addressable market for your effort?
And it sounds like this could actually hit that $100,000,000,000 marker faster than the core plus effort. Maybe just your thoughts on that. And also from a product perspective, obviously, a lot of this is yield oriented, but to what degree do you see core plus real estate being a component of the investment effort for insurance companies as well as BAM?
It's always dangerous asking me a question like that. Everybody in my conference from here is wondering what am I going to say. I think just to start, it will logically build much faster than the Core Plus business because in the Core Plus business, you actually have to buy individual properties or a group of properties and each one of those deals is sort of it's an art form and that's what we do. And if we can outperform a REIT index, people seem to like REITs, I don't quite get it. But in any case, if you outperform in 1400 basis points, maybe we do have a better mousetrap, right, that deserves a much higher sort of multiple.
But leave that aside, Those are individual purchases, whereas in this insurance area, we can be generating potentially sort of assets on a much larger basis, we could take over portfolios where somebody has $25,000,000,000 $30,000,000 $60,000,000,000 And so the chunkiness in the insurance area, assuming we position ourselves correctly and can add the kind of value that we hope to be able to do, should lead to much more rapid growth logically in that area. So when Tony says something like he's more excited than he's ever been, which and I say the same thing, the reason why we say things like that is we actually believe them. And so that's just one area where if you I always like thinking about upsides as well as sort of more moderate types of things. This is an area that's got a huge upside if it develops right and we can do a great job and we're meeting a need with an industry that's got $23,000,000,000,000 I mean, how if you just balance that and say what can you be, you can provide the answer as well as we can. But it should be potentially really scale.
You never know how any new business develops. We've had a pretty remarkable record, I think, of going into new areas and having them really flourish because we don't do that many, because there aren't that many really fascinating things to do. And so we've identified this one and we're going to ride it as sort of aggressively in a good way that we can by producing good product for people who really need it. And they need it in this industry. And there's no CEO almost that I've met in the whole industry that doesn't agree with that, that they need more return.
And there's no business we get into because we can go get a lot of AUM. That's not the point here. The point here is, A, can we bring a solution, a unique solution to investors with a need that is not being filled and that other people can't fill, number 1. And number 2, can we fill it with really high performing product? We don't want to do a lot of mediocre product.
We don't want to
do any mediocre product just
because we get the AUM. That's not the business we're in. We're in the business delivering superior returns adjusted for risk that other people can't do and can't match. I think there's big opportunity here. But in general, the equity oriented kind of products we do, whether that's from private equity down to some of the sort of core plus through all the way into the BAM stuff, those all those equity oriented things is probably not more than 5% to 10% of the asset pool at max is
way below that today.
It's a fraction of that today, but that's probably the max. And then the rest of it is credit oriented stuff, private credit, public credit, all of that is a lot of that is target for us, although I don't ever see us trying to be great at what BlackRock and PIMCO and so on do in terms of managing treasuries and high grade bonds for a few basis points. That's not our business.
That's great color. And maybe just one more comment. I mean, I agree with you on the liquidity premium, the overvaluation of liquid assets versus illiquid assets.
It obviously
makes a lot of sense for 401 plans to have larger allocations to illiquid assets. Have you had any traction whatsoever with regulators convincing them that? Or is that still kind of more of a dream?
So this is going to happen. And that's going to happen it's not going to happen tomorrow, but it's going to happen because it has to happen. We have an aging demographic in this country where the average savings of someone between $40,050,000 is $14,500 We have static incomes and they cannot put enough away enough savings with health care costs and education costs and other things going up to retire comfortably if they don't earn more on their savings than the 2% to 3% return that 401s average today, 2% to 3%. Now you put alternatives in there like pension plans do and you can average 6% to 7%. It's massively different when that compounds over 40 years and someone retires.
This must happen because there is no other way for society to afford the aging demographic that is our future. So, it will happen and I assure you we're going to be working on it and we're already having some discussions, but things move slowly. On the other hand, the target is huge. Stay tuned.
I understand. Great. That's great color. Thank you.
We have time for one final question and that will come from the line of Robert Lee, KBW.
Great. Thank you for your patience and taking all the questions.
I guess I'm just kind
of curious about the maybe a little bit about the competitive universe. I mean, clearly, you guys are and some of your peers, but particularly you guys are global leaders in your business and it seems like many of the leading companies are clearly U. S.-based and if you think of private investing, but good businesses attract competition. Any kind of sense, I mean, obviously, you've got SoftBank with their vision fund in the specific market. But I'm just kind of any sense, whether it's out of China or elsewhere that you're seeing, I don't know, I'll call it local champions or others who are kind of trying to come up the curve and not that they can compete with you, but they can certainly make life more challenging if trying to find investments at good prices and whatnot.
So just trying to get a sense if you're seeing anything like that and if that's having any impact on kind of the investment opportunity in certain markets?
Yes. I think we've always encountered that. Markets are global, markets are local. And there have always been good local competition in Europe, and there's particularly good local competition in China for a lot of reasons. Entrepreneurial culture, enormous savings base, lack of visible loss.
So relationships are exceptionally important in that culture. On the other hand, in terms of global types of competitors, we don't find that to be the case. And there are a lot of reasons for that, and I don't expect that to happen. One final thing before Tony gives you his views is that SoftBank is unusual
thing. First of
all, Maso is a really unusual guy. And he's bold, he's sleepless, he's aggressive, and he's picked an area in which to invest, which for the most part doesn't have cash flow. So to the extent that he can raise money to make investments in companies that hopefully will do well, but there's not a guarantee with that. The amount of money that can be deployed in a whole industry that really suffers from lack of cash flow, very rapidly investment in effect negative cash flows to get to breakeven, that's a highly specialized set of characteristics. And what he's done quite brilliantly actually is going out to be the defining institution in that asset class and the world has given him capital to do that.
And his ability to put capital at work in an industry that for the most part doesn't have cash flow. So we can't finance any way other than raising more and more and more and more equity that any blockage to public markets, access to public markets will create enormous needs for finance. And Masa is in that space and he's been very clever and he's made some very good choices historically and had good returns. That's a that to me is it's an outlier. And he's an outlier in terms of sort of his not to beat the phrase, vision.
And he's that's why he's got a vision fun and he's prepared to play and people are prepared to finance. Outside of something like that, I don't think we see anybody who's really got the aspiration that we have. U. S. Players tend to be very aggressive and integrative and like to do that stuff.
Most other investors more or less just stay in their geographic areas.
Yes. Let me take a different lack of that question. I would say if anything, the competition is less than I used to be. Why do I say that? First of all, it used to be a much all these industries, private equity, mezzanine, capital, real estate, opportunistic, used to have dozens dozens of players that were close to each other in size.
The difference between a $250,000,000 fund and a $350,000,000 fund at one point just to be significant. That's concentrated heavily. And so there are a lot fewer players. In addition, all the investment banks and the banks are out of the business. The hedge funds that used to come in do private equity, now they're not able to do that because they need liquidity.
So I would say if anything the competitive scene has consolidated, we have fewer really strong competitors than anyone else. One of the reasons for that we used to have, one of the reasons for that is there are scale advantages to our business. So when we this isn't like public markets where the bigger you get, the more the transaction costs and the loss of nimbleness cost you excess returns. In our world, the bigger you get and the deeper you have in the way of operation skills, the more information you have, the ability to do things others can't do because of knowledge, presence in geography, brand, things like that, all those matter. So scale helps.
So as you get more scale, you get more advantages, get more ability to deliver consistently higher returns and that of course forces consolidation. And then finally, LPs that once took the attitude of I'm going to have tons and tons of managers, this is a high touch business and the administrative costs are eating them up and OLPs tend to be public institutions for the most part have the budgets to keep up with all of these small managers. And so they want to concentrate their providers. So the other forcing of concentration is on the LP side. The cumulative effect of those three forces are, I think, consolidating in some ways, I'm not saying less competitive because it's very competitive, but fewer competitors.
Great. Thank you very much. Thanks, Rob.
And at this time, we have no further questions in queue. I would like to turn the conference back over to Mr. Weston Tucker for any closing remarks.
Great. Thanks everybody for joining us today and please reach out with any questions.
Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.