Good day, ladies and gentlemen. Welcome to the Blackstone fourth quarter year-end 2017 investor call. My name is Derek. 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. You may press star one and put yourself in the question queue at any time. We request that you please limit yourself to one question and one follow-up. If you need operator assistance at any time, please press star zero. At this time, I would like to turn the conference over to Weston Tucker, Head of Investor Relations. Please proceed.
Great. Thanks, Derek. Good morning. Welcome to Blackstone's fourth quarter conference call. Joining today's call are Steve Schwarzman, Chairman and CEO; Tony James, President and Chief Operating Officer; Michael Chae, our Chief Financial Officer; and Joan Solotar, 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-K 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-K.
We will also refer to non-GAAP measures on this call. You'll find reconciliations in the press release. 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 audiocast is copyrighted material of Blackstone and may not be duplicated without consent. A quick recap of our results. We reported GAAP net income of $763 million for the fourth quarter and $3.4 billion for the full year. Economic net income, or ENI per share, was $0.71 for the quarter and $2.81 for the full year. 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 for the full year, both up sharply.
We declared a distribution of $0.85 to be paid to holders of record as of February 12th. That brings us to $2.70 paid out with respect to 2017. With that, I'll now turn the call over to Steve.
Thanks, Weston. Good morning, and thank you for joining our call. Blackstone reported a superb set of results for the fourth quarter, capping a record-breaking 2017. Full-year economic net income rose over 40%, as Weston mentioned. Distributable earnings rose over 80% to $3.9 billion, resulting in our best ever 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 billion of capital inflows. We returned over $55 billion to our limited partners through realizations. We deployed over $50 billion around the world as we continued 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 records, both for the firm and for the alternative sector as a whole. We ended the year with total assets under management of $434 billion, 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+, 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. The size of investments we can make here is also much larger. In addition, LPs often allocate more capital to these areas. 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 trillion, that's with a 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. This 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. I believe we can build a business well in excess of $100 billion of AUM over time.
We're off to a great start with a $23 billion portfolio and investment management agreement with Fidelity & 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. As you know, we have up to $20 billion 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+ 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. 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+ strategy to over $27 billion. When we launched this business a few years ago, I shared my vision it would eventually reach $100 billion. 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 billion since its launch last January. In our hedge fund area, our individual investor solutions platform now manages over $8 billion. In credit, we just launched our first 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 competence 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. 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 19.4% 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. Imagine appreciating in real estate 19.4% versus 5% for the public REIT index. We're like 1,400 basis points over the standard measures in something like real estate. It's pretty amazing. 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. 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 U.S., 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 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 first 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 the 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 where deploying capital and our ability to navigate the current environment. I think Tony mentioned in our private equity area that we just signed an agreement to purchase the Thomson Reuters business, which is a $20 billion 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. We're doing it across more funds, more asset classes, and more regions. We're staying disciplined and 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 as our shareholders, you benefit from. Since our IPO, if you've 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 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. I think Blackstone and our shareholders alike have a lot to look forward to. I've never been more excited about the future. 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. Now, I'd like to turn things over to Michael Chae, who hopefully is having as much fun as I am.
You can tell I'm having lots of fun, Steve. Thanks, Steve. Good morning, everyone. Our fourth 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 of DE to $1.24 billion, one of our two best DE quarters ever. Full year results were even more impressive. Revenue rose 35% to $6.8 billion, driven by 67% growth in performance fees and investment income, while economic net income increased 41% to $3.4 billion. Fee-related earnings rose 21% to over $1.2 billion 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 $3.9 billion, also a record, with two of our three best quarters falling during the year, both of which produced a dollar or more per share of DE. As you know, our business model is powered by a simple virtuous circle: inflows, deployment, value creation, and harvesting. Over the past four years, the metrics reflecting these cornerstones of activity have been remarkably robust. $328 billion of inflows, $133 billion of deployments, $85 billion of appreciation, and $183 billion of realizations. This has enabled us to deliver nearly $13 billion in distributable earnings over that time period, or an average of $3.2 billion and $2.66 per unit annually. We simultaneously grew AUM by $168 billion in this period, or by two-thirds, and doubled our dry powder.
While 2017 was just the most recent period in this 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 billion in the quarter, $108 billion for the year, including the acquisition of Harvest, which added $11 billion. Excluding M&A, inflows of $97 billion still represented our best-ever year, despite not having either of the flagship global BREP or BCP funds in the market. Our previous record year of 2015 included both of those funds, which accounted for over one-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 four 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+ Real Estate and Core Private Equity together raised $13 billion last year, and now together account for $32 billion in AUM. Second, expanding the regional footprint of existing strategies. In 2017, we raised over $16 billion of regional strategies, $6 billion for our second Asia real estate fund, which will soon hit its $7 billion cap, $1.6 billion for our first Asia private equity fund, which we expect to hit its $2 billion cap, the extension of Core+ into Europe, and the final close of our fifth European opportunistic real estate fund, which reached nearly $9 billion. Third, our newer strategies continue to scale with large successor funds as well as new adjacencies.
Tac Opps and Strategic Partners, for example, together raised $8 billion last year, bringing them to a combined $43 billion of AUM. Fourth, and very importantly, the emerging high-growth distribution channels of retail and insurance, which Steve discussed. Retail comprised $12 billion 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 billion of AUM, provides us a formidable anchor position from which to build out this effort. This AUM is sticky, long-duration capital with a 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 their returns with our combination of products and scale. Next, deployment. We invested over $50 billion for the full year, including $20 billion in each of our private equity and real estate segments, and $10 billion in our credit segment, which was a record for each of those segments. We have over $12 billion of investments signed but not yet closed, so we enter 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.
Within private equity's $20 billion segment deployments, we had $9 billion in 2017 of higher-octane corporate private equity investments focused on situations where there's 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. $1.5 billion were in long-duration, high-quality Core Private Equity investments, $5 billion in Tac Opps' flexible mandate to uncover attractive risk-adjusted returns in the eclectic places they hide all around the world, and $5 billion in SP's leading secondaries business, which spans buyouts, growth equity, real estate, and infrastructure. Similarly, within real estate's $20 billion of segment deployments, $6 billion of opportunistic, over $9 billion in our evergreen Core+ platform, $1.4 billion in BREIT, and nearly $3 billion in real estate debt.
Blackstone's growth and diversification allow us to do three 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 BREP and BCP. Indeed, while the firm's deployment of $51 billion in 2017 was nearly double our 2014 pace, by comparison, BREP and BCP together invested a consistent $15 billion in both of those years, actually. However, our investment pace in a burgeoning range of other strategies more than tripled from $11 billion in 2014 to $35 billion in 2017. All of this is quite positive in terms of building a diverse store of value to drive future distributions. Moving to investment performance, the measure of the ongoing value creation in 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, while the corporate private equity funds appreciated 6.8% and 18%, respectively. For the year, Tac Opps appreciated 15%, Strategic Partners 23%, Core+ Real Estate 12%, BREDS drawdown 15%, BREIT 10%, BAAM 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, BAAM since 2013, and Tac Opps since inception in 2012. Strong performance across the funds powered $585 million of net performance fees in the quarter, and $2.2 billion for the year. As a result, the performance fee receivable on the balance sheet was stable in the year. With that $2.2 billion in net performance fee accrual nearly matching the $2.3 billion in net performance fee distributions.
Said another way, the unrealized value we created in 2017 fully replenished the firm's stored value, even as we paid out more cash than ever before. Finally, on realizations, which were $19 billion in the fourth quarter and $55 billion 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 $12.5 billion in the public markets, including the continued sell-down of our stake in our highly successful investment in Hilton. We executed $50 billion 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 wrap up by touching on two 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 second quarter, affecting $20 billion of AUM, with a net impact to FRE in the year of approximately $50 million. We view this decision as compelling from a financial and strategic point of view. The $583 million of pre-tax transactional payments we will receive will significantly exceed earnings forgone 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 three 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. Third, 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 BREIT to capture an estimated 45% share of the non-traded REIT market, which draws from similar channels as the BDC market. We expect the separation date and initial receipt of proceeds to occur in the second quarter. 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 second quarter. 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 none appear to be materially adversely impacted. In real estate, our holdings are generally unaffected directly at the asset level by the legislation. 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. We will continue to evaluate the issue, taking into account any new information and developments. In closing, while 2017 is a tough act to follow, we enter 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.
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 questions.
Certainly. At this time, ladies and gentlemen, if you would like to ask a question, you may do so by pressing star one on your telephone keypad. Again, that's star one to put yourself in the question queue. As a reminder, please limit yourself to one question and one follow-up. Our first question will come from the line of Michael Cyprys, Morgan Stanley.
Hi. Good morning. Thanks for taking the question. Just thought maybe we'd start off on tax reform. Sounds like you're evaluating sort of the puts and takes there. 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 out 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. 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. 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. 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. That's the area.
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. We're thinking through that carefully. We think more time and information will benefit our judgments on this, we don't view this as a race.
Great, thanks. Just as a follow-up, if I could, with the transaction you announced yesterday, the largest deal 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. 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 need to expand your expertise, if anywhere?
Yeah. Okay. Mike, it's Tony. Yeah, we're big believers in data. In fact, as we speak, our entire private equity group, everyone 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 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, 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. 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. 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, JP Morgan.
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. 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.
Yeah, sure. It's Steve, I'll take that. The U.S. is estimated to be roughly $2 trillion minimum short in terms of what's optimum to have in infrastructure. I think in the State of the Union, the president mentioned that he had a proposed package of $1.5 trillion. For people like ourselves in our fund, we've geared it to the private sector because it's very kludgy historically trying to do things with the public sector. Two pieces 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 two years.
We're five times less effective, which increases the cost of everything that gets done, discourages people from undertaking projects, and basically limits the asset class, and that's that. Of course, not all things that government do could be bought by the private sector because a lot of them don't have cash flow. To the extent that they do, this provides additional opportunities to put money out in scale. That could only be, I believe, my general counsel may be jumping up and down, but could only be a good thing in principle to have more opportunities of different types. The question is how much money will go into this. The proposal, I think, is a mixed proposal of federal government money, state and local, and private-public partnerships. That gets up to that $1.5 trillion number.
We're in the private partners focus, public-private partnership, 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. It's only upside, if you will, for more things to finance. 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, 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. Many of those companies are actually rewarded based on what they have invested after all their costs are covered. There's no incentive at all for those companies to be run better and sharper and crisper, that's just not the environment that they exist in.
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. I think we're getting both. When we talk to both Republicans and Democrats, no one wins with this ridiculously slow system we have. I think there's tons to do even without it.
Great. Thank you. Just for a follow-up, in terms of real estate investment, I think $11 billion invested this quarter, big number, largely in BPP in some Europe, from what I saw. Can you talk about the outlook for investment in the flagship U.S. BREP area and maybe estimate the value of the pipeline announced not yet closed for BREP VIII? I don't know if you give that kind of detail, I thought I'd try.
Well, I'll let Michael think about the specific number on the pipeline. Look, 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. We're finding things to do, they'll be lumpy and large scale, where we maximize some of our advantages vis-à-vis other buyers. The pipeline is smaller, 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 billion. 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 a $100 billion 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? 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 a 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. We think there's an opportunity for us to help manufacture products. We are the largest generator of fees in the financial world. We generated last year, I think, somewhere around $160 billion-$170 billion 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 to private equity in our credit products.
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. 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. We look at this as a 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. 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's kind of 3 things we bring to the party. Number one, of course, we bring our existing products to the party. They're all, as Steve mentioned, under-allocated to alternatives in general. Part of that is cultural, part of that is historical, and part of that is kind of regulatory and capital. The first thing we'll do is be able to offer them higher returns at a lower risk through our core products. Of course, those will have the usual fees and carry that we usually charge. The second thing is they're all short of private creditworthy assets. Investment-grade private assets. Why private? Private debt, for the same credit risk, yields a significant yield premium. 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. In fact, in our equity businesses, we're creating the very kind of paper that they want. Instead of having a place and a set of investors to give it to, we're selling it into the market. We're already creating billions and billions of paper that they're short and we're long. It doesn't take a genius to put those 2 things together. Thirdly, we've 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 in 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. 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. 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. Just a follow-up, Steve, on some of the traditional asset managers that report before you, there's been some discussion of migration back out of alternatives back into more traditional product. Yet when I see your results and some of the peers have reported, it's sort of hard to 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 lunch with investors, you had mentioned that some of these caps are being raised to accommodate a franchise like yourself that have a global perspective. Are we at a point where this is as good as it gets? Do you think that there's still room to go on the institutional side to grow the business?
Yeah, it's a good question. I don't see those caps. What's happening is, it was interesting. I was with somebody who runs one of the largest funds in the world, and he was at Davos, and he was saying, "Geez, 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." 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'll have 50 different investments, something like that, with a lot of diversification. Same with a real estate fund. Same with a credit fund.
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 money managers in that sense. I think we're feeling pretty comfortable. 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. 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." 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, they all show LPs putting more in alternatives, and the fastest-growing segment of alternatives is private equity.
Got you. Can I slip one more question in? I apologize. I know you said two, but I don't want to use it today. Michael, you had mentioned that you're sort of studying the cost-benefit analysis, I certainly appreciate the what you know versus what you don't know. From our perspective, had 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 get you to figure out which way to go, whether to convert or stay as a PTP? Is it just how the stock behaves? Is it potential inclusion in index, dual structure of the company? Just we're trying to understand where from here we should be thinking about in terms of key points of decision-making.
Yeah, 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.
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. As Michael said, we're not in any rush to make it.
Okay. Thank you very much for accommodating the questions.
Yep. Thank you.
The next question will be from the line of Craig Siegenthaler, Credit Suisse.
Thanks. Good morning, Steve, Tony, Michael. 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 and closed blocks? Also, what is the appetite to replicate this strategy in Europe where leverage ratios can go even higher? 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. 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. We have several insurance vehicles, number one. Number two, yes, Europe and Asia are both definitely on our radar screen. Number three, 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 start-up 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 days ago. As we look out, obviously a very significant deal, the largest in several years. Do you guys expect the size of private equity deals to increase in the coming years relative to what we've seen? What are you seeing in terms of leverage and availability of leverage? 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 sized transactions?
Sure. One of the advantages of having a large global multi-sector fund is we can go where the opportunities are. 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. We'll do it across regions, and we'll do it across sectors. 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 large, because sometimes that's where we find the best opportunity. In general, American business has gotten more efficient. 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.
We're looking for things where we can go in and make a significant difference to the management of the company. In this case, the Thomson 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. 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. 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.
Yes, I think there'll be some other big deals, but I don't think it'll be a wave of them because 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. Yeah, 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. That is definitely here to stay in my opinion.
Got it. 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 if that's roughly the same under ENI. Should we think about the kind of low 20% as 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 ENI as well, 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. 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 all still holds. My question today, a year later, two 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, do higher interest rates matter? Are you seeing any changes in demand for any of your products as rates rise?
It's Tony. No, I think the answer still holds. We feel very good about where we are in the cycle. Yes, while rates go up, because the Fed, look, they left rates flat this meeting. They're very, very careful about raising rates, and they're doing it in response to economic growth. A lot of people would say the U.S. economy is doing extremely well. If we looked at through the eyes of our portfolio companies or our real estate portfolio investments, things are going great. 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.
While base rates are extremely low, spreads have been pretty full here. 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. 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. By the way, when we sell assets, you're seeing great realizations.
I appreciate it. Thanks, Tony.
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, clearly that's going to drive growth. 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. I think as I've mentioned in the past, the growth is really going to come from 3 areas. 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. Second is penetrating the channels more deeply, third is new products. Even in new products, we're pretty early stage. I think you're going to continue to see new products. We're going to be launching something in the channels that'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.
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. It's a little bit of a mistake to just look at what's there and then what percentage. I think in many ways, given what we can do in a scale way that others can't, even in terms of weaving product together, we really end up being the catalyst to the growing size. We are seeing more demand for floating rate product, and I think you'll continue to see more launches from us.
Devin, a couple of other tweaks on that. The products in this market tend to be longer duration or permanent capital products, a lot of them. It facilitates our shift of our mix to more permanent capital products. I would just say some of these products can be very large in scale. 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, 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. As you mentioned several times, it's an entrepreneurial culture. I think sometimes the level of innovation at Blackstone is underestimated. 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 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 leg like infrastructure?
Yeah. Both is the answer. There's certainly adjacent products. 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. Three major new legs. Truthfully, some of what Joan's 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 as a new leg. Harvest would be a new leg.
I think we have, as I said in the press call, as I sit here and I look forward five 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 five years than I've ever seen in 15 years at this firm.
Yeah. Thanks very much. I think 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 of strategy with different return characteristics?
Yeah. It's enhanced floating rate. It's an interval structure, monthly liquidity type product. It does have a higher return than some of the competing offerings out there currently.
Great. My follow-up's on tax reform.
Patrick, sorry, let me just say.
Yeah.
We have a view here that investors 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% of your portfolio you could sell tomorrow. Our whole strategy has been to sort of build on 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. There's a gap you can drive a truck through for us.
Awesome. Thanks. Then a quick one on tax reform. Has the increased, I guess, cash flow from your U.S. privates followed through to any positive marks yet, or is that something we can still expect?
Yeah, Patrick, it's Michael. What I'd say is, for example, the 6.8% appreciation in the Core Private Equity portfolio in the fourth quarter, that was mostly driven by fundamentals on a company-by-company basis, not by tax impact. I think we've been very careful about wanting to factor in tangible, directly observable impacts on a company-by-company basis from this. 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.
All right. Thanks. Good afternoon. Just one question. On the total fundraising, each quarter you guys tend to surprise to 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's different. You guys tend to be more consistent in the level of fundraising. Is there a way to size that opportunity up over the next one to three years, whether it's in 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?
I'll let Michael Chae think about how to answer that while I bullshit for a minute. We don't like to give projections, as you know, and certainly three-year projections. We like to sort of underpromise and overdeliver. I think you'll be happy, but you have to trust us on that.
I'll also bail out a little on the answer. I do believe that the growth we see, the character of the growth is a good thing on both FRE and overall AUM front.
Mike, go back 15 years, even through the great financial crisis, we've never had a year where AUM didn't grow, ever. Look at the secular growth over any long period of time. There are ebbs and flows, but we don't see any diminution of that secular growth.
Yeah. Mike, quite seriously, 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 five, six, or seven years, I forget which, we've compounded AUM at 17%, at the same time giving back enormous amounts of money. One might think that's pretty good.
Okay. You got three answers there. Four more, Mike.
Yeah. 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. 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. 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, just kind of curious as to where we might be in that cycle. Thank you.
Well, we got to be a little careful here. It's a public company. I'll let them speak for themselves. 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. Hi, folks. Thanks for taking my question. Maybe just to zero 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? It sounds like this could actually hit that $100 billion marker faster than the Core Plus effort. Maybe just your thoughts on that. Also, from a product perspective, obviously, a lot of this is yield-oriented, but to what degree do you see Core+ Real Estate being a component of the investment effort for insurance companies as well as BAAM?
Yeah, it's always dangerous asking me a question like that. Everybody in my conference room 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. Each one of those deals is sort of, it's an art form, and that's what we do. If we can outperform a REIT index, people seem to like REITs. I don't quite get it. In any case, if you're outperforming 1,400 basis points, maybe we do have a better mousetrap, right? That deserves a much higher sort of multiple. 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 billion, $30 billion, $60 billion. 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. 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. That's just one area where 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 trillion.
I mean, if you just balance that and say, what can you be? You can provide the answer as well as we can. 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. 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. They need it in this industry. There's no CEO, almost that I've met in the whole industry that doesn't agree with that they need more return.
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 one. Number two, 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 of delivering superior returns, adjusted for risk, that other people can't do and can't match. I think there's big opportunity here.
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 BAAM stuff, all those equity-oriented things, is probably not more than 5%-10% of the asset pool at max. It's way below that today. It's a fraction of that today, but that's probably the max. The rest of it is credit-oriented stuff. Private credit, public credit, all of that. A lot of that is a 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.
No, that's great color. Maybe just one more comment. I agree with you on the liquidity premium, your evaluation 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 in convincing them that, or is that still kind of more of a dream?
This is 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 and 50 is $14,500. We have static incomes, and they cannot put enough away, enough savings with healthcare costs and education costs and other things going up to retire comfortably if they don't earn more on their savings than the 2%-3% return that 401Ks average today. 2%-3%. You put alternatives in there, like pension plans do, and you can average 6%-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.
It will happen, and I assure you, we're going to be working on it and we're already having some discussions. Things move slowly. On the other hand, the target is huge.
Stay tuned.
Great. That's great color. Thank you.
We have time for one final question, 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 maybe a little bit about the competitive universe. Clearly, you guys are, and some of your peers, but particularly you guys, are global leaders in your business. It seems like many of the leading companies are clearly U.S.-based, if you think of private investing. Good businesses attract competition. Any kind of sense-- Obviously you've got SoftBank with their Vision Fund in the specific market. 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 you're trying to find investments at good prices and whatnot.
Just trying to get a sense if you're seeing anything like that, and if it's having any impact on kind of the investment opportunity in certain markets.
I think we've always encountered that. Markets are global, markets are local. There's always been a good local competition in Europe. There's particularly good local competition in China for a lot of reasons. Entrepreneurial culture, enormous savings base, lack of visible laws. 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. 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 an unusual thing. First of all, Masayoshi is a really unusual guy. 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.
To the extent that he can raise money to make investments in companies that hopefully will do well, 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 by investment. In effect, negative cash flows to get to break even, that's a highly specialized set of characteristics. What he's done, quite brilliantly actually, is gone out to be the defining institution in that asset class. The world has given him capital to do that. His ability to put capital at work in an industry that, for the most part, doesn't have cash flow, so it can't finance any way other than raising more and more equity. Any blockage to public markets, access to public markets, will create enormous needs for finance.
Masayoshi is in that space, and he's been very clever, and he's made some very good choices historically, and had good returns. That to me is an outlier. He's an outlier in terms of sort of his, not to beat the phrase, vision. That's why he's got a Vision Fund, 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.
Let me take a different whack at that question. I would say, if anything, the competition is less than it used to be. Why do I say that? First of all, All these industries, private equity, mezzanine capital, real estate, opportunistic, used to have dozens and dozens of players that were close to each other in size. The difference between a $250 million fund and a $350 million fund at one point used to be significant. That's concentrated heavily. 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 and do private equity, now they're not able to do that because they need liquidity. I would say, if anything, the competitive scene has consolidated.
We have fewer really strong competitors than anyone else than we used to have. One of the reasons for that is there are scale advantages to our business. This isn't like public markets where the bigger you get, the more the transaction costs and the loss of nimbleness costs 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 a geography, brand, things like that, all those matter. Scale helps. As you get more scale, you get more advantages, you get more ability to deliver consistently higher returns. That, of course, forces consolidation.
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. No LPs, which tend to be public institutions for the most part, have the budgets to keep up with all of these small managers. They want to concentrate their providers. 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.
At this time, we have no further questions in queue. I'd like to turn the conference back over to Mr. Weston Tucker for any closing remarks.
Great. Thanks, everybody, for joining us today. 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.