Great day, ladies and gentlemen, and welcome to the Blackstone 4th Quarter and Full Year 2015 Investor Conference Call. My name is Katina, and I'll be your coordinator for today. At this time, all participants are in a listen only mode. Later, we will facilitate a question and answer session. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today's call, Mr. Weston Tucker, Head of Investor Relations. Please proceed.
Thanks, Katina. Good morning, and welcome to Blackstone's Q4 2015 conference call. I'm joined today by Steve Schwarzman, Chairman and CEO Tony Boehm, President and Chief Operating Officer Michael Chae, our Chief Financial Officer and Joan Solazar, Head of Multi Asset Vesting and External Relations. Earlier this morning, we issued a press release and slide presentation illustrating our results, which are available on our website. We expect to file our 10 ks report later next month.
I'd like to remind you that today's call may include forward looking statements, which by their nature are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update any forward looking statements. For a discussion of some of the risks that could affect the firm's results, please see the Risk Factors section of our 10 ks report. We will refer to non GAAP measures on this call. For reconciliations, you should refer to the press release.
I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation for an offer to purchase any interest in any Blackstone funds. This audio cast is copyrighted material of Blackstone's and may not be duplicated, reproduced or rebroadcast without consent. So a quick recap of our results. We reported economic net income or ENI per unit of $0.37 for the 4th quarter and $1.18 for the full year, which were down from the prior year periods due to lower appreciation across some of the funds. Distributable earnings were $878,000,000 in the quarter or $0.72 per common unit and $3.23 per common unit for the full year 2015.
That full year amount is a record and is up sharply from 2014 due primarily to greater net carry in our private equity and real estate businesses. We'll be paying a distribution of $0.61 per common unit to unitholders of record as of February 8, which brings us to $2.73 paid out with respect to 2015 and that equates to an 11% yield on the current stock price, which remains one of the highest of any large firm in the world. With that, I'll turn the
call over to Lee.
Good morning and thank you for joining our call. 2015 was the year in which Blackstone achieved several milestones, including reaching record assets under management of $336,000,000,000 continued expansion of our leadership positions in every business we earn as illustrated by record capital raised of $94,000,000,000 and record capital invested of $32,000,000,000 both stunning. Our best year ever for capital return to our shareholders at $2.73 per common unit as Weston just mentioned. And of course, we celebrated our 30th anniversary. We entered 2016 with great confidence in our business and its prospects.
The public markets, however, have certainly had a challenging start to the year with the narrative that's been dominated by concerns over global growth, energy prices, high yield credit, China, the Fed and the U. S. Presidential elections. Investors have been caught in a down cycle of pessimism and oversold conditions as markets have corrected. In times of turbulence, having locked up capital can be a tremendous performance advantage, both in the ability to deploy scale capital at very good prices and to hold our investments during inevitable downturn.
While it's always possible that a market correction becomes something more significant, We at Blackstone do not see a recession in the U. S. We do believe that global GDP growth is slowing. We've seen a slowdown within certain sectors and regions in our global portfolio as a result. On balance, however, our portfolio companies remain in terrific shape.
Our private equity companies grew EBITDA in the 4th quarter versus the declines in the broader market, which we've witnessed now for several quarters running. And in real estate, our properties are reporting healthy fundamentals across the board, including mid single digit growth in office rents in the U. S. And the UK and continuing albeit somewhat slowing hotel RevPAR growth. And our company CEOs mostly expect solid growth in 2016.
Overall, our investment returns were quite strong in 2015. You'd never know it looking at our stock, but they were quite strong with most of our funds well ahead of global markets. Our corporate private equity funds, for example, appreciated 7.4%, while our tactical opportunity funds were up 9.3% and strategic partners, our secondaries business, rose 19.4%. Our real estate and our opportunistic funds appreciated 9.7%, while our newer core plus platform was up 19.1%. Our products we do for our limited partners as a group dramatically outperformed the S and P total return of 1.4%, typically by multiples of 5 to 7 times, not exactly what something you should be punished for.
We delivered these results despite the ongoing public pressures in our public stock portfolio, which are baked into these returns. Importantly, the locked up structure of most of our funds means that we're never forced sellers and can wait until markets improve before exiting public positions. Having 10 year funds, for example, means that things that happen over a few months or even a year don't impact us the way they do other investors. We don't have redemptions in our drawdown fund. And even in our liquid funds, capital flows remain healthy.
Our hedge fund solutions area, for example, reported strong net inflows in 2015, including in the 4th quarter when we typically see seasonally higher redemptions. One reason for that is we've outperformed public markets in that area as well quite significantly. We're seeing strong demand for credit products as high yield spreads have gapped by 100 of points and liquidity has declined. Our credit business overall is benefiting from these trends with great demand for financing at much higher rates of return than 6 months ago, and we are deploying much, much more capital as a result. In fact, the Q4 was a record quarter of deployment for GSO as it was for our Private Equity and Real Estate segments.
GSO's existing investments are being negatively impacted on an interim mark to market basis, but that doesn't reflect the inherent credit quality of the overall portfolio or its ability to have principal return in interest paid. Blackstone stock, as I've referenced, has been under severe pressure and the alternative asset management group has been one of the hardest hit in terms of stock price declines. Despite this, I have every confidence in our firm and our current position. While our stock has declined 40% from market high levels last year, I think it's important to ask what's different for Blackstone today versus early last year when the stock was significantly higher. What has happened to our business?
Well, we're 16% larger in terms of AUM than at year end 2014 with sharp growth in every single business. The $94,000,000,000 we raised last year is the size of many of our peers and exceeds the annual fundraising of our next 4 largest public competitors combined. We invested over $32,000,000,000 in our drawdown funds and committed another $6,000,000,000 to investments that haven't closed yet. That is by far a record for us with the heavy tilt towards later in the year when the investing environment was more favorable. We returned $43,000,000,000 to our fund investors through realization.
I believe our sustained high level of capital deployment over the past several years is planting the seeds for eventually harvesting significantly larger future distributions than what we're generating today. Blackstone is, I would argue, the best positioned firm making long term investments to capitalize on the changing investment landscape. We have the industry's largest dry powder at $80,000,000,000 I expect we'll raise tens of 1,000,000,000 more in the coming quarters as limited partners look to a franchise they trust, a safe pair of hands, one that has navigated these types of environments successfully like we've done for 30 years now. And our LPs continue to allocate greater amounts of capital to the fast growing alternative space, particularly to Blackstone, as The Wall Street Journal reported last Friday on its front page. Our public equity sales have been slower in the past two quarters for obvious reasons, but that didn't materially slow the overall pace of realization activity in 2015.
That also means that there is more in the ground today, compounding value, which will eventually be realized for our investors. And despite that, we still have a huge year, a record year for realizations. We've also launched several new funds and businesses in the past year. This is where Blackstone really sets itself apart from other firms in our industry and frankly most others in the world. The foundation of our culture and therefore our success over the past 30 years is innovation with safety.
While most companies struggle to build great businesses outside their original success, it is a core competency of our firm. We continue to quickly launch and scale new products, leveraging our talent, knowledge and brand in order to take immediate advantage of market opportunities. For example, our Real Estate Core Plus business has grown to $11,000,000,000 in size in only 2 years after its launch, and it has incredible runway ahead of it. In our hedge fund solutions area, our new multi manager hedge fund platform has grown rapidly to $2,000,000,000 in AUM using only 9 8 portfolio managers currently and we've been very pleased with their performance so far. Our secondaries business, SC which Tony James was instrumental in founding at DLJ before Blackstone acquired it in 2013 is now raising its 7th buyout fund and several new funds targeting $10,000,000,000 or many multiples the size of their main fund when we acquired this platform just 3 years ago.
Our tactical opportunities business launched 3 years ago is already $15,000,000,000 in size and is benefiting from many of the opportunities opened up by the bank's pullback in certain areas. And in real estate, our commercial mortgage REIT, BXMT, is benefiting from the same trends. BXMT is exclusively a senior mortgages lender with floating rates, so you don't have to worry about rates going up, which people seem to be fixated on, with collateral underwritten by our world leading real estate platform. Yet, it is today trading at a 10% yield for senior floating rate debt. It's trading below book, which means you're now basically getting the Blackstone Real Estate franchise for a negative value.
And that makes no sense. And that's but that's the world right now in equities and leverage credit. We've seen versions of this movie many times before with always the same outcome, outsized returns for someone. So to answer my earlier question, what's changed for Blackstone over the past year, that we've continued to build and extend our leadership position in basically every area we're in. Our stock price decline is reflective of what's happening in the public markets and the mark to market movement of certain of our assets, which we do not believe is indicative of their fundamental value as measured by their operating results and their prospects.
This temporary decline in value should normalize over time. Our firm is in terrific shape with strong momentum in every area. We continue to generate high levels of current cash flow for our unit holders with a distribution yield, as Tony mentioned on our earlier call, based just on fee earnings with some other flows that is at the top quartile of the S and P 500 and that is without the help of any realization, which constitute the majority of our earnings over time. And the trajectory of our fee earnings is sharply upward, which you'll see in the future, which Michael Che, who's going to speak next, will discuss in more detail. We remain highly profitable with strong growth prospects and downside protection in the form of stable and growing fee earnings and a rock solid A plus rated balance sheet with about $4,000,000,000 in cash.
And right now, you're getting Blackstone on sale. As I've shared before, we've done an implied stock price analysis for the next 10 years. Based on what we believe to be conservative assumptions of AUM growth of 8% to 12%, By the way, last year it was 16%, so we just like doing some numbers for you, at 8% to 12%, as well as lower than historical returns for our drawdown funds in the mid teens instead of higher and mid single digit returns in our liquid strategies, which historically has been much higher. The implied total value for Blackstone shares over that 10 year period would be in the $100 to $125 per share area. That is including distributions and using what I believe is a reasonable yield of 5% to 6% on our cash flows.
That $100 to $125 per share value equates to a multiple of money to you as investors of between 4 and 5 times today's stock price or an IRR of about 19% to 22% annually compared to the 10 year treasury, which as you know is around 2%. So I guess the question is, would you prefer 2% or 20% annually? It doesn't seem like a tough decision to me, but it apparently is to many of you. I'm in the minority. If an investor can do better than 4 to 5 times their money in 10 years, then they ought to go ahead and find something to do it with.
I'm personally not selling my BX units and I believe great things are ahead for this firm. At Blackstone, we continue to benchmark ourselves against the best performing companies in the world and feel quite good about our progress, delivering strong growth, high margins and terrific returns for our LPs. Nevertheless, we're always striving to do better and to do more, and 2016 will be no exception. Our shareholders can be assured that Blackstone will never stand still. We will keep blazing the trail forward and I hope you all remain with us or join us if you're not already a shareholder for this wonderful adventure.
So thank you for joining our call today. I'm going to turn things over now to our Chief Financial Officer, Michael Che, who's doing a really terrific job. And I guess this is his second earnings call.
Thanks, Steve, and good morning, everyone. Despite the significant downdraft in markets that we experienced for much of the second half of last year and which has continued into this year, Blackstone generated favorable earnings, cash and capital metrics for both the Q4 and full year. The fundamental pillars of our business remain extraordinarily strong regardless of market conditions. Our full year distributable earnings of $3,800,000,000 up 25% from the prior year, was our best ever and also the best ever for the alternatives industry, with the prior record being our own 2014 performance. The primary driver of this was a $610,000,000 increase in net realized performance fees and investment income from $2,300,000,000 to $2,900,000,000 with year over year increases in both private equity and real estate.
Reported fee related earnings declined modestly from $1,000,000,000 in 2014 to $936,000,000 in 2015, with the underlying strong trajectory of our asset and management fee stream growth offset by 2 items. First, we completed the spin of our advisory businesses on October 1, and so 2015 was without what is typically those businesses' seasonally strongest quarter. 2nd, as discussed last year, we changed the deferral policy for our equity based comp plans in the Q4 of 2014, which provided a benefit in that quarter to FRE. Adjusting for these items, FRE was up strongly in 2015 and we expect it to be up strongly again in 20 16. E and I was $2,200,000,000 for the full year 2015, down from a record 2014.
The Q4, our ENI was $436,000,000 reversing the $416,000,000 loss of the 3rd quarter. The lower rate of fund appreciation in 2015 was due primarily to the declines in our publics and to a much lesser extent in the second half, which affected excuse me, decline in our publics, which affected most of our businesses and to a much lesser extent, certain unrealized markdowns in energy and credit and currency translation effects on some of our non U. S. Holdings. Importantly, the locked up structure of most of our funds means that we are never forced sellers and can wait patiently until the time is right before exiting.
Exiting. In fact, excluding our hedge fund solutions business, 94% of our fee earning AUM are in funds with long term lockup structures and have a weighted average remaining life of approximately 8 years. This is the heart of our business model and fundamental competitive advantage. In this context, I think it is informative to look at our historical experience with public market exits. In the past 10 years, we've IPO ed and fully exited 11 companies through the public markets, representing $3,700,000,000 of invested capital.
We took them public at a 40% gain on average from the prior quarter mark, patiently timed our secondaries, generally successfully higher values notwithstanding market fluctuations and realized a final cumulative multiple of invested capital of 3.6x on average. Today, we have $24,000,000,000 in publics in our private equity and real estate funds, which of course is greater than in past periods given the significant growth of the firm. Although our publics have been under pressure with the broader market so far in the Q1, which could impact E and I in the near term, we feel good about our companies and remain confident in our ability to exit them over time at attractive rates of return. Currently, our public stocks are marked at a 1.8x multiple of cost in aggregate, reflecting significant built in gains even at current levels. As a companion point, we feel very good about our private portfolio.
At times of stress in the markets, it is worth noting that our portfolio remains marked at a material implied discount for the multiples of market comparables. And as you know, over time, our IPOs and private sale values have consistently come at large average premium to prior carrying value. Let me now dig in a bit more into our 2015 performance at the business unit level. How did we navigate the truly tricky year? First, performance.
The competitiveness and growth of our firm begins and ends with investment performance. In 2015, our Private Equity segment fund outperformed the S and P 500 by approximately 1,000 basis points. Our Real Estate SPREP funds also outperformed the S and P by about 1,000 basis points and the REIT index by over 1100 basis points. Our hedge fund solutions composite outperformed the S and P by over 300 basis points and the HFRX hedge fund index by over 600 basis points. 2nd, realizations.
As Steve highlighted, we returned to our investors $43,000,000,000 in realizations in 2015, following a $45,000,000,000 year in 2014. That's $88,000,000,000 in 24 months. In real estate, dollars 21,000,000,000 this year $41,000,000,000 over 2 years. In private equity, $13,500,000,000 in 20 $15,000,000,000 $29,000,000,000 over 2 years in credit, dollars 8,000,000,000 this year $17,000,000,000 over 2 years. We feel very good about having capitalized on favorable market conditions from a realization standpoint.
Next, deployments. How did we navigate the tricky year from a deployment standpoint? In Corporate Private Equity, we stepped carefully through what we saw as a challenging terrain. We committed $3,500,000,000 in capital, in a sense, quietly in 12 deals with an average deal size of less than $300,000,000 largely an off the run value oriented place with an average purchase multiple of under 8x EBITDA, average leverage of under 4x EBITDA and we did none of the large highly leveraged LBOs, number of which are now hung up in the financing markets. In real estate, we leveraged our singular platform and consummated Hallmark deals that we were uniquely positioned to do and which often capitalized on increased market dislocation, the GE deal, StuyTown or public and privates among others.
In BAM, we launched our multi manager platform at a time when subsequent market turbulence revived opportunities for Short Alpha and our team capitalized on this environment. As critical were the things we didn't do. In energy, we have raised over $8,000,000,000 of dedicated capital in private equity and GSO to take advantage of the current dislocation and almost all of it remains undrawn. In terms of existing exposures, we are mark to market and the full year impact from our energy investments in 2015 was about 5% of our E and I of $2,150,000,000 That includes all of our energy investments in private equity and credit, not just oil and gas and E and P. And so that includes investments in energy sectors such as power and renewables that are not directly affected by oil and gas prices.
In terms of our credit area in general, the Q4 was a difficult one for the market overall and for parts of our portfolio, particularly certain energy related and event driven situations. This situation has obviously continued in January. The vast majority of impact was from unrealized markdowns and in companies where we feel good about their prospects. Historically, I would note that GSO has experienced realized losses of less than 50 basis points in drawdown in direct lending funds. While in the near term, we should plan for continued market pressure that may further affect these marks, we expect that eventually markets will bottom, stabilize and recover.
In the meantime, we bring to a credit market that is seeing unprecedented dislocation and increasing liquidity pressure structurally, the ideal investment platform where approximately 80% of our capital base is in locked up or permanent capital structures where we are not forced sellers and are poised to strike as buyers opportunistically. Indeed, with some $15,000,000,000 in dry powder, our team at GSO has a record amount of funding at what, in their view, will ultimately be the best time to deploy capital in the credit market since 2,009. The last topic I'd like to address this morning is the outlook for distributable earnings, which includes both our growing fee related earnings as well as our expectations for performance fees. We have significant embedded growth in our fee earnings just based on capital that has already been raised and also fundraising initiatives currently underway. 2016 will include the full year benefit of BREP 8.
In private equity, BCP 7 will launch, though there is a 6 month fee holiday, which will delay the onset of fees. In addition, we have multiple new funds being raised, which will positively impact this year, including, among others, in European Real Estate, Real Estate Debt and Core Plus, Strategic Partners Flagship Secondaries Fund and other SP products, Tactical Opportunities products, GSO's mezzanine fund and other products, or private equity and inflows across a wide range of BAM products. These fundraisers are progressing very well across the board, and we expect in the aggregate another very robust year of inflows that will add meaningfully to FRE in the near term. With respect to realizations, we have a significant pipeline of situations with the potential to be monetized at the right time and in the right conditions. Although the near term could be impacted by more limited public market sales, we have other means to generate realizations, including potential private sales as well as the current yield portion of our performance fees.
As of year end, approximately half of our net accrued performance fee receivable that is from vintages 2010 and prior is nearly all public and or liquidated. And in the vintages since 2010, we've deployed $104,000,000,000 in capital in our drawdown funds alone or about $21,000,000,000 per year on average over that 5 year time period, a substantial portion of which is still on the ground in companies that are fundamentally strong and performing well. While the investments in these funds are seasoning, their ultimate potential is not reflected in current marks. Although we've had several years of significant realization volume, the ratio of capital deployed to the cost basis of realizations has averaged 1.6 times for private equity in real estate, meaning we've been putting well more into the ground than we've been taking out. The cupboard is not emptying, but on the contrary has been refilling.
And today, we sit with $80,000,000,000 of dry powder, dollars 34,000,000,000 or some 73% more than this time last year, pacing into an even more interesting investment environment. In closing, although the environment has become more volatile for investment management, it is exactly in these types of environments that our firm thrives and builds upon our existing leadership position. We believe we have a powerful and valuable business model advantage. Over the last 8 quarters, our fee revenues per dollar of fee AUM have averaged 3.5 times those of the largest traditional asset managers. And our total revenues, including performance fees per dollar fee AUM, have averaged 8x those of traditional managers.
Our AUM has grown at over 20% average annual rate for the last 5 years, and we expect to stay on a robust trajectory. The vast majority of this AUM, as I mentioned, is locked up for an average of 8 years. And most importantly, we bring to this environment a record over 3 decades of having approximately doubled the returns of the public market and other benchmarks. So while we reached several new records in 2015, we believe we have never been better positioned to capitalize on the many opportunities in front of us and to achieve even greater milestones in the years to come. With that, we thank you for joining our call and we'd like to open it up now for any questions.
And, Kettina, before you prompt for questions, I'd like to just remind everybody, if you just limit your questions to one main question and one follow-up. We've got a pretty full queue and we want to make sure we get to everybody. If you have additional questions, you can queue back in.
Thank you. Your first question comes from the line of Luke Montgomery representing Bernstein Research. Please proceed.
Just in terms of deployment in energy and other commodities, I think you had $7,000,000,000 or $8,000,000,000
of dry powder last quarter. I think you
also suggested that the Energy P Fund and GSO were biding their time at least through the first half of the year. But I think I hear you saying now you feel the opportunities are riper for capital deployment. So maybe you could speak to your appetite in the current environment and flesh out some of the things you're looking at?
Yes. Luke, Tony, let me just clarify a couple of things. Michael said, over 8, I said 8.5 I think I said 8.5 of dedicated energy funds. Most of those funds co invest with another fund. For example, our Private Equity Energy Fund takes about half of the deals and so it drags along a similar amount of private equity capital.
If you add all of the capital we have available for energy, it's closer to 15,000,000,000 dollars So just to clarify, so there's no confusion. And yes, it's hard to call the exact turn, but as I said before, these prices are not sustainable. The nice thing about oil and gas wells are they decline the decline curve is fairly sharp, so they deplete quickly. These aren't copper mines, which can produce for 50 years. And if you're not drilling a lot of new wells and you're producing, which is what's happening, which is why there's a surplus, very quickly supply self corrects.
So whether it's sometime in the next we could survive these prices for several years with the investments we're making and still we expected prices to be up 65, 75 in 4 or 5 years and we'll make some very, very nice returns. So when we look at energy investing, we look at surviving a long time where prices are today and then still getting very, very nice returns if we get back to prices 60 or above, which are well below prior peaks. And ironically, the lower prices go today, the higher they will be in 5 years from now because the more other new drilling and whatnot gets shut off. So yes, we think it's a very interesting time to put money out now. There's a lot of companies that desperately need capital.
You can come at the top, some cases top of
the risk stack, top of the capital stack and
still have equity like returns. In other cases, great companies with good assets, just have no alternatives. And actually, I think as the cycle unfolds, it will get better and better and better. And then prices start to move up, the activity level will pick up quite quickly. And so, I think it will actually even get better as prices move up is a way to deploy capital.
Okay, thanks. Really helpful. And then I think one of the questions we get is around how you're marking the private equity or the private positions rather in private equity and real estate. And because it's DCF based, those marks might not reflect what you could sell them for today. My understanding is that you actually aren't allowed to mark the sale and I heard you that the fundamental cash flow growth looks strong.
You have a long horizon. I think you might have even addressed the question indirectly already, but I was hoping you might speak to the concerns that private marks could be masking a decline in distributable earnings over the intermediate term.
Sure, Luke. It's Michael. As I mentioned in my remarks, our private portfolio remains marked at a material implied discount to the multiples of market comparables. And over time, again, as we talked about, our IPOs and sales have consistently come at large premium to prior carrying values. And if you step back, that's because in our private valuations, we focus intently on fundamentals and what the right long term historical average multiples are for a given asset or an industry.
And at the same time, we do keep an eye on whether our implied carrying multiples at a So So we feel good about it and that's a little bit of an insight into our process.
Well, let me comment a little differently on that. First of all, last time, as you know, I went through this, we did not have big markdowns in the portfolio, much less than the public markets. And when we sold, we had big markups and realized big gains. And even BCP V will be coming in gross to double investors' money. Why is that?
It's because we're not just buying public stocks here that mark up and mark down. When we buy we're buying companies or going in there, we're creating value by significantly increasing their earnings and their growth rates and their margins and their return on capital and enhancing their management teams. And that goes on whether the stock market goes up or down. So we create a lot of value and our private companies appreciate even in declining markets.
All right. Thank you very much. Appreciate it.
Your next question comes from the line of Bill Katz representing Citigroup. Please proceed.
Okay. Thank you. I appreciate taking my questions. First question is on just the pricing backdrop. I think one of your competitors was out recently at a talk, mentioning that there is potential for downward pressure on both the 2 and the 20.
So I was wondering if you could comment on what you're seeing or what you would anticipate if any type of pricing change as it relates to some of the drawdown businesses that you run?
Yes, I was surprised at that actually. We haven't been experiencing that. And We have sold out or I guess it was better characterization is blown out. Every fund that we've marketed over the last X number of years. And occasionally, we have some sort of negotiation over massive amounts of money in the multibillion dollar categories that would be special account spread over a whole lot of different products.
But what that other group was saying, we have not experienced that. And if you look at the kind of returns that we've talked about, and Michael had a lot of stuff he was saying, but I think his last sentence or 2 said something like we've averaged around double the S and P, something of that type on funds that are trying to get those kind of returns. When you provide that kind of like super performance, But what you find is you end up having great long term partnerships with limited partners where it's a win win type of arrangement. So that's pretty much what we're experiencing.
Yes. Let me comment on that. We have one of our main businesses tactical opportunities. We're seeing the precise opposite. We're having a significant increase in fees carry in Fund 2 than we had in Fund 1, and they're both oversubscribed.
That's helpful. All right, Steve, I was debating when I was going to ask this, but since you spent a lot of time on it in your prepared remarks, I figured why not. When you reported Q3 earnings, the stock was $33,000,000 By your math, you can get a 4x return on your investment if you would have purchased Blackstone today. I look at Page 23 of your supplement, which is one of the better supplements by the way, you lay out all your MOICs both realized and total invested and none of it comes close to 4x. So how do you think about capital return or capital priorities as you look forward?
And is your thinking change at all in terms of buyback given where the stock is today since nothing's changed in the business model?
We get asked about stock buybacks and for us, we think our first of all, our model of projecting what we're doing, we think is actually quite conservative. And so the question is why aren't we doing a massive stock buyback now? And one of the reasons is that I like cash. I like it like a lot of entrepreneurs like cash, whether it was the Microsoft people or the Google people, the Apple people. You like cash because it gives you the opportunity to take advantage of opportunities.
And what happens is we're being approached, for example, by a number of different organizations that want to affiliate with Blackstone. Because we pay out, we're trying to please people, including ourselves, and we pay out almost all of our earnings and we have sort of sky high yields by the standards of other companies. And so for us, if we buy stock in and we're leveraging ourselves up and we need our cash for two reasons. 1 is acquisitions. And the other is at this at the rate we're growing, we have to keep putting money into funds.
Limited partners believe that if you don't invest in your own funds, you don't show confidence or alignment. And so we always want to have a lot of money around because our ability to start new products is really remarkable. And last year, we grew at 16% after giving all this money back. And we keep coming up with new products to put ourselves in a position to do major share buybacks and not be able to fund the growth of the business, which puts money in the ground for long term and we grow from Fund 1 to subsequent funds very rapidly, we would not be investing in effect for the long term. Nothing wrong with buying stock at this price, nothing.
But if we think we're compromising our ability to grow one of the greatest companies in the world, it's just a question of how do you allocate. And then they're all good allocations. But I'm a great believer in taking advantage of every investment opportunity for the benefit of our limited partners. And if we do a great job for them, they have 1,000,000,000,000 and 1,000,000,000,000 of dollars. And if we keep getting a vastly disproportionate amount because of the performance, that's great for our public shareholders over the long term.
That was a long answer, but I wanted to tell you how at least I think about it.
Bill, let me add a little color from my perspective to that. First of all, we absolutely think the stock is an unbelievable buy. And we're all in on it personally. I mean, don't know exactly how much Steve owns these days, but it's a lot of stock. Same as I always do.
And he hasn't sold a share since the IPO. So we're all in on the stock we think a fantastic buy. Secondly, the value that Steve talked about of the $100 one of the things that drives that is the organic growth rate that we've got that takes capital to fund. So if we stopped having the capital to fund the growth, I'm not sure we'd necessarily be ahead of the game. But that's really not the point.
We're here to build a great institution that takes its place with the enduring great companies of America. And we've got an amazing opportunity and a clean shot to do that with nothing in our way. And we've got daylight between us and all the other competitors. And we think we're supposed to go build that legacy and do something really special here and not take advantage of short term trading opportunities because of buying in a few shares because they're a little low.
Bill, I'd like to just clarify one thing you stated in kind of the setup to your question. I think you alluded to the page in our 8 ks with our investment records and our historical MOICs, which range 1.8x, 1.9x. The assumptions underlying the sort of analysis and model that generates Steve's discussion and view on our long term equity value creation, It's premised very much on that 30 year history of producing those types of multiples of money, which then produces DE over time, which supports a yield that supports the stock price Steve mentioned. So I just wanted to be very clear about that.
Thank you, guys.
Your next question comes from the line of Mike Kim, representing Sandler O'Neill. Please proceed.
Hey, guys. Good morning. First, Tony, I think on the media call, you mentioned the range of something like $1 to $3 of distributable earnings this year depending on realization activity. So first, is the low end essentially just based on fee related earnings? And then at the high end, what sort of general market backdrop would you sort of need to generate that level of realizations?
Let me be clear. I was not in any way making a projection about what we might be in 2016. I was simply pointing to the structure of our business, where we're in a position now depending on realizations to get somewhere between $1 in any year. $1 which is driven largely by fee related income and some of the recurring income investments we have like interest on debt and stuff like that, which you get every year regardless of market. To this year, we got over $3 in DE.
And so we're a $1 to $3 like payer on a stock of mid-20s. Look, what kind of yield is that, that makes any sense? And so all I was what I was pointing out is, I wasn't trying to make projection as to what the realizations would be in 2016. Although I will say, I don't see any reason why we can't have significant realizations in 2016 on top of the $1 that comes largely from fee related and other recurring income.
Got it. Okay, understood. And then, Steve, since you mentioned wanting to maintain cash on hand for potential acquisitions. Just curious if you could maybe comment on where you might be focusing competition and or pricing trends?
Well, giving away inside information on widely spread calls is a bad idea. And we get approached by different types of managers, whether they're long only managers, alternative managers of all sizes, because what's happened is every time that someone has affiliated with us, their business has exploded with growth. So we have our own sort of list of priorities, which we think makes sense. And then we get over the transom type of inquiries. And what we're interested in doing is expanding when it makes sense with businesses that we can really enhance with people who share a similar value system.
We are not trying to do anything for the short term. And for us to actually buy something, there has to be a fit of values and culture and risk aversion, because what I've figured out is that there are no brave old people Usually you get wiped out by being brave when you're younger. And so we have a number of things we're looking at. What tends to happen is we have an advantage actually of real liquidity in our stock. We typically are about half the market cap of our whole industry.
And if anybody is interested potentially in liquidity, we're a very good home, but we're quite discriminating. We don't want to do anything that dilutes ourselves and changes the culture of the firm. We like building them ourselves, but we found some really terrific opportunities. And more of this stuff comes out of the woodwork when you have adverse market cycles than when you're at tops. At tops, everybody's self confident and happy.
And then when the tide goes out, you see who's wearing bathing suits or whatever. And so I think. Whatever. Maybe I was bragging to have them be wearing them. But it's we're seeing some activity now.
We'll see what happens with it.
And I just want to comment, we've made 7 or 8 acquisitions. The returns on all of them have been terrific. And so I don't think you'll see transformational things that change the course of the firm overnight, but we'll continue to do smart acquisitions where we can build a lot of value. And none of them will be ego driven by the way to have bragging rights for more AUM or something.
Got it. That's helpful. Thanks for taking my questions.
Your next question comes from the line of Patrick Davitt representing Autonomous. Please proceed.
Good morning. My question is around
the credit comments that Tony made on the media call.
If you could walk us through from GSO's perspective, what kind of
leading indicators they are looking at that give them comfort, it's a good time to ramp up the best investment as much as they have. In other words, what leading indicators do they see that show that the issue is not broader than energy? And in that vein, at what point do you worry about the liquidity driven price decline leading into real credit issues?
Okay. Well, so let's put energy aside. I think if you look at and Michael can help me out here. If you look at the implied default rates on the pricing of low investment grade credit today away from energy, there's something like, Michael, 4%. 4%.
4% or 5%. And yet, we see to actually achieve those default rates, you would have to go into a recession and a financial crisis similar to what we went into in 2,008, 2009. We don't see that at all. So when I say leading indicators is a not quite the way we view it. What we view it is inherent value right now.
So the yields are too high for the embedded credit risk. And therefore, it's a good buy. And so we put we're putting money into the market. We're getting additional money from investors to continue to do that. I don't think this is something we're going to plunge at all in one day though.
We're somewhere else in a good part of the cycle and we'll continue to take a series of bites in that part of the cycle. Incidentally, I would say the same thing for energy about where we are in the cycle and the bites we're taking, although obviously in energy, you're going to have some fairly high actually default rates. And so we're betting that into our scenario too. But I think that the illiquidity of the market has driven pricing of less than investment grade credit, unreasonably low, yields too high for the risk. And so we're taking advantage of that.
Yes. Just to give you one idea without a name, but there's one security we were discussing the other day with sort of a yield of 17% at somewhere around 6x EBITDA in terms of value through the debt. Well, we buy companies all the time at 6 to 7 times EBITDA. And if you could get like a 17% cash yield, gee whiz. Remember, treasuries are 2, so it's not so bad.
But market's gapping out. I mean, you have to hand it to the regulatory environment. When you get rid of basically dealers, stuff just gaps. And our job is to take advantage of that for our investor. Thank you.
Your next question comes from the line of Ken Worthington representing JPMorgan. Please proceed.
Hi, good morning. In terms of financing, you're putting a lot of money to work. How are you finding the financing markets? They less accommodative.
We're still getting what?
Let me try it again. You're putting a lot of money to how are you finding the financing markets? Maybe where are they less accommodative? And to what extent are you seeing others having a hard time closing deals? You mentioned some hung deals.
How widespread is that really? And I assume that you insist on and you get preferred financing treatment. So is the financing market inconsistent enough yet for this to be an advantage to you?
Okay. We're getting financing on the deals we want. Actually in most of the cycle before the credit markets turned down, we felt the credit markets were giving too much debt for the companies and we weren't taking all that was available. We just didn't think it was healthy to have capital structures that are over levered. Those have come down a little bit, but we're still getting 5x, 6x, sometimes 6.5x debt to cash flow for our companies.
However, as Michael pointed out, a lot of the investments we're making are lowly leveraged and we're getting the returns that we target sort of 20% plus without much leverage by driving the operational change and the growth of the business. So we're not our returns, as I've said over the years, don't come from leverage. They come from what we do with the companies, number 1. And number 2, excessive leverage environments push up prices that sellers get when they sell the company and force us to pay more and lower our returns as an industry. So there so it's not good.
So this backup is good for private equity, make no two ways about it. And there's more values, there's fewer buyers and there's lower prices out there when we make the investment. In terms of others problems, the problems were concentrated in the really large deals at very high prices where sponsors were mostly doing public to privates was one big carve out where that was a problem. And the market is working through those. Some of those deals are being repriced.
Some of those lenders have taken a lumps and moved on. Some of them have gotten done pretty well. Actually, so it depends on the specific situation. The market likes plain vanilla solid businesses right now. You can still finance those well.
If it's a turnaround or a falling knife kind of deal, it's hard.
Great. Thank you very much.
Your next question comes from the line of Mike Carrier representing Bank of America Merrill Lynch. Please proceed.
All right. Thanks a
lot. First question, I guess just on the current portfolio, I guess it's 2 parts. Just first, I think you mentioned that they're still seeing EBITDA growth, but any details there? And I think as we're later in the cycle, people worry about or investors worry about slower growth. And so maybe from an economic standpoint versus what you guys can do or the portfolio companies can do to drive growth, like what's the outlook?
And then when you look at the returns, whether it's this quarter or for the year, any breakdown for the public returns versus the private side of the portfolio?
Well, I'll let Michael deal with the second part. Our corporate companies are having EBITDA growth in the low single digits, low to mid single digits depending on the company. Our real estate, I would say, are mid to high single digits.
I would add that in our portfolio, if you look at the economy overall in the U. S. For corporates, the most pain, as Tony has alluded to last quarter and now, is around kind of the industrial companies that are most export exposed to the sort of global economy. Our private equity portfolio happens to be lighter on that kind of thing, heavier on some other industries, which we think which for a reason we've selected sectors carefully, intend to be relatively growth here. So that is why in aggregate, as we've talked about, while we see some deceleration, even our own portfolio, we are still outgrowing the sort of public market overall meaningfully.
On the performance of our publics and privates, we don't sort of break that out per se. I'd say 2 sort of dimensions to it. One is obviously over the course of the year, there were some fluctuations in the Q3. Publics generally were down in the Q4. They recovered.
And you saw that flow through our E and I in 3rd Q4 in terms of us basically having an E and I decline in 3rd quarter and then more than reversing that in the 4th quarter. I'd say the other dimension is certain sectors have been hit more than others. So in the real estate area where lodging is a significant component, lodging stocks have been hit harder than other sectors. So you see, some sort of sector differentiation there. And then through the course of the year you saw obviously ups and downs.
Okay, that's helpful. And then Michael maybe just a quick follow-up, you mentioned just on the FRE outlook given some of the funds that will be fees will be turning on. Just do want to get a sense, when you think about maybe the net of like fees turning on and step down of funds, and probably more importantly, like the FRE margin, as we go into 2016 and 2017, because I guess 2017, you'll have kind of a full year of both of the flagships. But just wanted to get a sense on where that would typically range as the fees are starting to ramp up?
Yes. I would say overall, Mike, that sort of we have a lot of visibility on FRE for 2016 based on funds that have been raised or and will be activated this year. And the trajectory is really good. It's really good. And that is not with withstanding that, for example, as I mentioned, BCP7 will activate this year sometime early mid year and there's a 6 month fee holiday.
And so in fact, the real contribution, substantial contribution from that fund will occur in 2017 when there's a full year effect. So I make that comment about the trajectory 2016 notwithstanding that and that obviously will help further in 2017. So overall, we feel we have a lot of visibility on that and we feel good about that. Okay. Thanks a lot.
In terms of the margin, Mike, I think if you look at kind of historical over the years, last year, the margin, as I alluded to, was reflected a bit that change in the deferred, comp policy. But when you sort of adjust for that, we've been on an upward march from an FRE margin standpoint for years now. And we believe we can stay on
that. An interesting I just note for the group here an interesting statistic. Huawei raised $94,000,000,000 last year. And I think I mentioned this year, of course, we don't have our 2 humongous flagship funds coming in the market, but we still have plenty to do and we'll have lots of fundraising. But our fee earning AUM, getting to your point, was up about 14%, fifteen percent last year.
We actually think it will be up comparably in 2016% over today. So continues to chug along and part of that is the fundraising cycle, but part of that is when the fees kick on and part of that is deployment. And all that plays through to a very steady rapid growth in fee earning AUM.
Got it. Thanks.
Your next question comes from the line of Mike Cyprys representing Morgan Stanley. Please proceed.
Hi, good morning. Just to start off with a question more on the broader macro environment. It seems as if there's a circularity right now in the marketplace with China's currency devaluing, U. S. Dollar appreciating, oil prices collapsing and equity prices falling.
So I guess just how bad is it? What's the contagion risk? What gets us out of this kind of funk here? And what's the real risk to the U. S.
Economy?
I think it's sort of it's always hard to know what everybody thinks. But sort of from trying to feel a consensus, it's been very negative towards China. And I think that's because people have looked at the way China has dealt with its securities markets by, 1st of all, running them up to unsustainable levels and now having them sort of go down and trying to intercept them on the way down to cushion the fall and that's been reasonably unsuccessful and it's given a bad tone and a bad perception. In China, it's similar with the stop and start on the currency, which really hurt confidence in the non Chinese world. China itself has about 52% of its economy in services, which are growing from what everybody can see in excess of 10%.
It's got last year, it hired 14,400,000 people more than they hired when they were growing much faster. Wages last year were up significantly in China. So it doesn't have the feel of something that's like certainly in free fall because it's not. The other sort of 48% of Chinese economy is having a more mixed picture from sort of declines in the steel business and sort of backing up against building infrastructure. They've got a lot of infrastructure.
And so there's going to have to be some rationalization in that sense. But if you have half of your economy growing at 10 plus and the rest is a mixed picture, You're not in a world of hard landings other than the fact that people have lost confidence in some of the policy directions in the marketplace. So I think that's a bit overdone. And so as we look at the world, the commodities, China grows about half of the world's commodities, and they're not buying as much, although it's maybe shocking to you that their purchase of oil in the last year was up 10%. I don't think most people know that.
Not all commodities are down, but the wash through the developing economies of the world as less commodities are bought and the prices sort of really collapse has put a lot of minerals mining and that kind of stuff and structural oversupply and people are shutting mines and stopping development and that's a long cycle type of approach, which will lead to slower growth in the emerging market. It has to and it's not just emerging markets. It's a country like Canada, for example, which is a big resource country. They're not growing. There are some quarters they're in recession.
So we sort of looked at it as sort of a slowing of the world. And the U. S. Is experiencing that to some degree. And Europe's being sort of going through stimulation with QE and Draghi and we own a lot of stuff in Europe and Europe seems pretty solid.
To us, I mean, might even do 1.5, I don't know. And the U. S. Probably ought to do anybody's guess, 1.5, 2, that's like half of the world. And China is going to do, forget what's reported, I don't know whether it's 4%, 5%, 6%, I call it 5%, and that's 14% of the world.
So you start running out of difficulties, although some of that remaining part is really falling into a bad position, whether it's Brazil in recession, Russia in recession. India is doing sort of quite well. They're reporting 7. Some of that's got an inflation adjuster in it or whatever. So maybe it's 5, 5.5, but India is a pretty big place.
So, places that we're growing, Colombia, 6, they're going to grow maybe 1.5, 2. But so there's just a bit of a slower world. And part of the issues of why people ask these questions is that some of the stuffs happen so quickly. Like with oil, for example, it's just potentially destabilizing certain producers. And you saw this morning that the IMF is in Azerbaijan.
I mean, Azerbaijan like 3 years ago and it's really humming and now they got the IMF visiting and that's what happens with very quick moves and some of these things will reverse. They don't reverse in 1 quarter to convenience anybody. But when if you have 20% declines in CapEx going into oil exploration with a 4% decline curve, Key wiz, do that for a few years and something's going to change and it will. So I think we look at all this and say, okay, if that's what's going on in the world, where do we play? Where are we worried?
Where do we play? Can we play in size? We do things that are conservative with big upsides, add a lot of value. And certain of our overall businesses are really in great shape, industries we invest in. And so it's not the end of the world.
If you look at the stock market, I mean, you have to conclude it's like the world is ending. Well, I don't think the world is ending. I think we're going through an adjustment and people like ourselves who own long term things and add enormous value end up at the end of the day being mega winners. That is my view and it's also because it's empirically been true and nothing has changed within the firm in terms of capability of people, capital, all the great things that enable you to do this stuff. So that's sort of how I see this.
And I would add, I think people are overreacting to the stock market. I mean, we had a whatever a 7 year bull market without a correction. We were like just statistically got to be a way overdue for a correction. And the backdrop of the S and P companies net income is weak. It's been 0.
So fees have gotten high. I mean and people look at the average S and P, that's kind of a distortion. Look at the median company in the S and P because the average is dominated because it's market evaluated by Apple and a few huge names. Look at the median PE DSP, it's high. So we had a correction, big deal.
There's enough going on. I think people are overreacting to that. And I just want to the implications of what Steve said about China are healthier than it feels to people to trade with China because a lot of where the growth is, is internal services part of the economy, which doesn't drive their imports or someone else's exports. So I think a lot of people that try to trade with China feel slower than it really is for that reason.
Yes. I mean, I was watching me and the head of P and G was on and they asked about Chinese, it's my 2nd biggest market, revenues and profits and things have slowed down a little bit, which is still terrific for us. I think that it's a more nuanced world, not a simple world.
Great. Thank you so much for that. And just if I could ask a quick follow-up on the leverage, the financing market comment from earlier, that the market is still open, it seems, for you. But I guess just how do you think about the risk in terms of credit availability drying up? What parts of your business could be most impacted?
And also what parts would be least impacted? Because I think there are some areas where you use less leverage and not much of any financing. Can you just help us think through that and how you manage around that in the environment?
Okay. Well, I think all of our businesses will earn more money on the new investments they make in that scenario. I think in terms of the private equity business, which is one that people will go to right away, an awful lot of what we do, things that don't require much leverage because they're growth equity, they're building new infrastructure. When we build a solar field in Mexico or an offshore wind farm in Germany or things like that, it's they're not leverage driven, obviously. And so we're not doing as Michael mentioned, we're not doing a lot of big highly levered public to private.
So will it impact us? Yes. I think it will impact us by giving us more buying opportunities. But even in every environment since I've in the 25 years or more that I've been doing this, we've always been able to get access to credit, always. And the amount of credit may go down, the source of the credit may go down, the structure of the credit may change, but we've always been able to access credit in the private market to some degree and that's usually more than compensated by the lower prices.
And if anyone's going to get credit in that market, it's Blackstone. Now on the real estate side, again, real estate is somewhat impacted, but it's a different credit market. And we were able to do secured real estate financings even in the depth of the crisis, we'll still be able to. And so I if you're right that somehow the credit market completely dried up for real estate, Boy, that would be interesting. Again, we've got the capital.
We've got the equity capital. Other buyers won't have access to either the equity or the debt. I would think that would be great long term. Our credit business, again, locked up money. They'll be the lender of last resort.
They'll be able to basically write senior loans at 20% kind of returns, equity kind
of returns. And if you
look at what happened with their mezz returns, they're in the 18%, 20% area. So that's it will be fantastic for them. So all in all, I just don't I think in that scenario, by the way, you probably have massive down legs in the stock market too. I don't see how you can have a shutdown credit market and not some kind
of panic associated with it. Steve? Yes. One thing, there's a cycle to this stuff, right? So what happens is when credit really tightens, if it's available, prices go down as Cody was alluding to.
So we'll look at something. And we were just looking debating something the other day in our tech ops business. What's the unleveraged rate of return that we should get for something? And so with no credit, we were debating on this one, should it be 15%, should it be 16%. Now this is no leverage, right?
So if you can buy something that's making 15%, 16%, as soon as markets normal, make pretend that your worst scenario comes true. There's no really credit available and you can set things up at 15%, 16%. Oh my goodness, this is like nirvana, because credit always comes back and then you put credit on it and you're making like 24%, 25%. This is how we got into the real estate business. In 1992, there was no credit.
You couldn't borrow anything, right? You really couldn't. We went out and started buying real estate from the RTC and other people, I didn't even know how to price it. So I just did it at 16, right? 16 sounded good to me, right?
So what happens is that 16, when you put leverage on it, became like a 24. And in that case, with real estate, we just filled up the empty units in the buildings and the 24% became like 45% compounded and then rents went up and we made 55%. So when you enter this type of period, I mean, Tony was pretty joyful, I thought, and excited about it. And asking the question, you obviously think it's like horrible, which is why you asked the question. But when you live through this game, right, there is big money to be made and it's not because of the credit thing, you use that credit cycle.
And DSO will make tons, right, because everybody needs credit. The idea that credit is like an optional in the global economy, credit is not optional. You'll get it at whatever price from whatever the purveyor is that's got it for you. And then you get way more options to extend credit. It's safer to extend credit.
So it just is unfamiliar to be in that part of the cycle if you have a monolithic model of how the world works.
And specifically to Steve's point, in each of private equity tack ups and real estate, we've done deals now on the assumption there's no credit to return hurdles, but we're also very confident that somewhere 2, 3 years we'll have credit. So it's not an issue, I don't
think. Very helpful. Thanks for that.
We get excited about this stuff.
Your next question comes from the line of Dan Fannon representing Jefferies. Please proceed.
Thanks. I was hoping to get a little more color on hedge fund solutions and some of the strategies that are seeing increasing demand currently and in the Q4?
Okay.
Well, I think the real star there is our Senfina business, which is our new sort of proprietary multi strategy business, which has had fantastic returns.
We're not allowed to say what they are.
We're not allowed to say how fantastic they are, but they're fantastic.
But trust us.
And that I think is we could almost sell an unlimited amount of that, number 1. Number 2, the daily liquidity product we have where we're actually offering institutional quality BAM returns to individual investors who can come in or out as well. I think we could sell an almost unlimited amount of that right now. And then we're getting some very good responses to our drawdown funds, which by which either provide seed capital or buy minority stakes in established hedge fund managers. Those are all sort of hot areas for us.
They're all high margin areas for us. And so that's where a lot of the growth is. And but in the core hedge fund solutions business, they continue to raise money. They continue to have money over income inflows that exceed outflows. So I think that's solid as well.
And this is the environment where that business shines. That business, I mean, it's going to there are risks, there are way to play public markets in a lower risk way, much less volatility, 20%, 25% of the volatility. They are protected they are set up to protect value on the downside and but not quite participate fully to the same degree as the market averages in the up market. So right now, their outperformance is sort of really surging.
And just one other area. They're actually getting quite a lot of inflows in their mutual fund type products.
So that's essentially liquidity.
That's been the biggest
part. It's through the other channel. Great. Thank you.
Your next question comes from the line of Devin Ryan representing JMP Securities. Please proceed.
Yes. Thanks for taking my question. Appreciate the remarks on the dynamic in the public markets right now. So just understanding that you guys have the ability to be patient, you still have to have a view on when you believe your price objective is going to be met for specific investment, which I assume has been pushed out in some cases recently. So to the extent the capital markets reopen here at current valuations, how do you balance that element of timing on some of the more mature investments today?
And then related, is there an increasing number of positions that were on a path for an IPO or follow on that are now moving into the M and A bucket?
Well, there are all of our investments are always in both the M and A and the IPO bucket and the recap bucket for that matter. There's not a bucket that we put them in. A lot of times when we sell some, it's a dual process. So I don't think anything much changed there. We have a number of investments that frankly we'd be happy to execute sales at current prices.
So we'll continue to take some money off the table. We have a number of assets that are for sale in the private markets that will move forward.
To the extent that we delay
an exit, I guess what we look at is the return we can earn by waiting. And we expect to earn a 12% to 15% return each year by waiting. So actually, we and our LPs, and I actually think our shareholders get richer if we wait.
Got it. It's helpful. Thank
you. Your next question comes from the line of Alex Blostein representing Goldman Sachs. Please proceed.
Hey, good afternoon guys. I'll keep this one real quick. So in your comments around realized performance fees and a chunk of that is being driven by just kind of the call it current yield or sort of the interest the coupon essentially you guys are getting on your investments. Any sense to help us size that again, just going to get back to the question of folks who are trying to assess the downside in distributor earnings, that would be obviously a much stickier part of realized carry or realized incentive fees. Any way to size what that was in 2015?
And the second part to that, I guess, as we move forward and I hear your comments on deployment and credit opportunities at the yields that you're seeing right now, should we think of those type of incentive fees kind of, I guess, growing over the next year or so?
Well, this is maybe something you should take offline with John and Weston, but I'll make a general comment. The bulk of our sort of low end of the distributable range of about $1 is fee related earnings from fees. The other stuff adds a little bit to it, but it's not they're not huge dollars. When you get and in our realized form incentive fees, the bulk of that are asset sales, the vast bulk of that.
The next question comes from the line of Glenn Schorr, representing Evercore ISI. Please proceed.
Hi. Thanks very much. I wonder if you could just help fill in blanks throughout the commentary I heard today on of the $15,700,000,000 of capital put to work. I see in the slides the $5,300,000,000 in private equity and comments around $2,600,000,000 in energy and European direct inside credit. I'm just looking for a top down view of like where money is being put to work right now besides the things that I just called out?
Well, sorry, where it's being put to work now?
Well, I apologize, in the 4th quarter. I'm just in the line for the other 15.7 percent, yes.
Yes, Glenn, out of the 15.7 percent, real estate was a bit more than half of that. The private equity segment was about kind of a third, 40%, and you cited the corporate private equity component of it. And then there's PAC ops and which was very active as well and SP. And then GSO is the balance at around 20%, call it 20% -ish of that 15.7%. And as we talked about the environment late as the year went on, got more interesting for them from the mezzanine standpoint as the leveraged finance markets kind of locked up, etcetera.
In fact, that deployment for GSL was an all time record quarter for them.
Okay. Now that's people think about their deployment going forward. And then last one, where are we on catch up for BCP V? I would ask Mark just market did what it did in the Q4.
Yes. There's I know in the over time we've had kind of different metrics to measure this. We talked a bit about the percentage through the catch up that was around 83% a couple of quarters ago and down to 73% or so more recently. And right now it's around 70%. Now maybe a different way to look at it is kind of what portion of our LPs are in full carry versus catch up in that.
Last quarter, I mentioned kind of fifty-fifty. Now it's a little less than 50% in full carry, a little more in catch up. So that will move around based on various factors.
Okay. Thanks very much.
Your next question comes from the line of Brian Bedell representing Deutsche Bank. Please proceed.
Hi, thanks for taking my questions. Most have been asked. Maybe just to zone in a little bit more on the realization and exit backdrop, mostly in both Private Equity and Real Estate segments. Just looking into 1Q and 2Q in terms of your pipeline and sort of where the market sits, Can you do, I know it's still hard always hard to do, but somewhat frame the size, the potential for both of those two segments over the next two quarters as sort of the market sits now for where we can move back up toward a 10 $1,000,000,000 type of gross realization trend or are we going down from current level?
I really don't want to get into projecting realization by quarter going forward. We're opportunistic and simple. We definitely will have realizations in this market at these prices. But if you want to get some more color from that, I think Joan and Weston can talk to you.
As always, we move into a new quarter with some contracted sales that will close in the 1st or second quarter. So there is that.
And do you view it more robust for the real estate segment rather than private equity, at least right now?
Yes, most likely, yes.
Yes. Okay. Great. And then just a follow-up on energy. Just maybe I missed this, but can you just outline again the what you have in energy dedicated dry powder and then energy invested energy currently invested just by the two numbers?
I'll deal with the dry powder. I think as we've mentioned, we have $5,000,000,000 in private equity of dedicated energy capital. And to invest that in every investment, that takes about 60% of each investment. Well, today, 50, but we'll move to 60, so call it somewhere in between. And the private equity funds take the other over 40 to 50.
So that you should think of that as $9,000,000,000 to $10,000,000,000 of dedicated energy capital. In GSO, we have a dedicated energy sleeve of about $3,500,000,000 and there's another $1,500,000,000 there's another about $1,500,000,000 in the other products that are associated with that similarly. So it's about $15,000,000,000 $14,000,000,000 all in in terms of dedicated energy and is virtually all dry powder at this point. In terms of I'm not sure each other how much is invested in energy? Yes.
Michael, do you want to answer that?
Yes. I think obviously private equity and credit are the main areas of the firm where there's energy. In credit, where energy generally is a significant portion of kind of the high yield bond market. For us across all of our GSO assets, the percent in energy is sort of in the call it low teens. And in private equity, as Tony mentioned, we obviously have general funds, the BCP funds and then we have BP.
BP is, of course, dedicated to energy, but importantly, those energy investments are sort of half and half assets that are E and P, oil and gas assets that are directly affected by, those commodity prices. And the other half are in sectors like power and renewables that are not. So that's sort of the structure of our holdings in private equity.
Okay, great. Thanks very much.
Your next question comes from the line of Chris Shutler, representing William Blair. Please proceed.
Hey, guys. Good afternoon. On the new products and innovation front, can you maybe just give us an update on core P, when we should start to hear a little bit more about that? And then beyond core private equity, I know you can't mention specific products, but how many other new products do you kind of have in the pipeline ready to launch this
year? Core
PE is really
a neat thing. And it's neat because the core plus area in real estate is about 3 to 4 times the size of the opportunity market. And our performance across the board in real estate is perhaps the best in the world and has been for a very long time. And so there is enormous potential growth in that business and the deals we've done so far look like they're really, really attractive from the perspective of our investors. So this is the kind of business where it's really like locked in money, very long period of time.
And I have very aggressive expectations for that business. I think I scare our people internally on a regular basis. I think that business, which has done $11,000,000,000 in its 1st 2 years and it's been a ramp up, we'll be able to really hit stride and doing some back of the envelope numbers myself this morning. And as we were looking at projecting sort of growth rate for the firm as part of the model that I talked to you about. And if we raised when this business is more mature, dollars 10,000,000,000 a year for something like that, that's almost like a 3 percent growth in our AUM that we projected.
Like an 8% model, it was just like just one product, of many products at the firm. So it's a natural for us. Investors like it. Principally in the U. S, we can expand this all around the world, and we do have a pool of capital for Asia.
So this is like a wonderful adjunct to real estate. We've got some other fixed income products looking at. It's very exciting.
So let me address your question. First of all, core PE, which you asked about, that will we'll finish the fundraising early this year and you should start to hear more about it, so to speak, to use your word later this year as we start to do the first deals. The number of new products across the board is probably not a terribly meaningful number, but we've got, I would say, 5 to 10 really cool new things, at least one to at least one, usually several in every major segment.
And we're working on them all. It's really fun. This is great.
All right. Thanks. If you don't mind, could I ask, since Steve, you mentioned earlier, that you're looking at other alt managers, traditional managers all the time. Just if you were to I mean, would you ever consider buying a traditional manager? And if so, what would be the main criteria that you would look at?
Well, we sort of haven't evolved to that level of sophistication yet. But if you were to do something like that, they'd have to be like special. It wouldn't just be a long only manager because there are interesting numbers on a page. It have to be unusual. They have to have an unusual culture.
There have to be something self sustaining. You never want to be buying anything or affiliating with anything that's just sort of a generic thing that has some interesting numbers that you could buy cheap. We want to be with the best in an area that we love that, being the best and look at synergies that could work between the businesses in terms of intellectual capital or different types of distribution or something. So this is not people like ourselves sitting around saying, that's a big area. Let's go buy something.
We don't operate that way. We don't operate that way internally in the alternative area. We just don't do that. And so it would be a little of a, I think, a needle in a haystack kind of thing. But if we ever did something like that, you'd say, wow, that's amazing.
And there'd be something really terrific with it. But we're not sitting around saying we're out of oomph in the alternative business, but we're tapped out and let's just start wandering because we've got nothing better to do and we've got to manifest destiny to stupidly grow. And so that's how we think about it.
And I just want to underscore Steve's so right, but just so we don't see the wrong things press.
There's 100 and 100
of long only managers that we have zero interest in. We're looking for something very, very special. We're looking at all that would be able to sustain superior investment performance, have real synergies, be a leader, be elite, have something very special franchise. I'm not even sure they exist. These might be unicorns.
Yes.
So I wouldn't be sitting around putting that one in your report as Blackstone is looking for. If Blackstone stumbles into it, it's we'd know it if we saw it, but it's not like we're out there hustling around, sifting through things and you're about to get surprised.
Understood. Thanks for the color, guys.
Your final question comes from the line of Eric Berg representing RBC Capital Markets. Please proceed.
Well, thanks very much. Thanks for fitting me in at the end here. Earlier in the call, you in the discussion about the market to market of the portfolios, you described it as, if I took away the correct impression, is being anchored by DCF, but sort of mindful of what's going on in the public market. You don't ignore the public markets, but they're not certainly the sole or may not even be the principal driver. And so my question is this, given that the cash flow, the EBITDA of the companies, the portfolio companies and of the real estate is improving, Why conceptually did the mark and the associated unrealized incentive income and carried interest in the December quarter.
While it improved from the September quarter, both of those numbers were still negative pretty much across the company. If the value of the businesses is hanging in there and the properties, why did the mark and the associated incentive income numbers remain negative?
Well, I think there are a couple of things, Eric. First, you have to take into account, if you're looking at realized and unrealized, you look at total performance fees. But obviously, when we realize things, there's sort of a flip, if you will, of unrealized going into realized.
No, I was actually talking about unrealized only.
Right. And then second, right,
but every time you sell an asset, your unrealized goes down, correct?
Yes. Fair enough. Thanks for that reminder.
Yes. That is what I mean by flip, and that is in those numbers because we had another good realization quarter. And then when you could strip all that out, we had positive appreciation and not as high as in some prior quarters. And so that's why you get a quantum of positive economic income that is positive, but maybe lower in amount than in some earlier time.
Eric, this is Weston. It's the total performance fee that has to do with the mark on the asset, not the unrealized performance.
Yes. Thank you. Thank you for that.
Okay. Thank you everybody for your time today. If you have follow ups, please give me a call.
Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.