All right. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. Taking of photographs and the use of recording device is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. All right, with that out of the way, good afternoon. Thank you all for joining us at our Morgan Stanley Financials Conference. I'm Michael Cyprys, equity analyst, covering brokers, asset managers, and exchanges for Morgan Stanley Research. It's my pleasure to welcome Michael Chae, the Chief Financial Officer of Blackstone. With $991 billion of assets under management, Blackstone is the world-
Who's counting, Mike?
I'm counting. world's largest alternative asset manager. Michael, thanks for joining us.
Mike, great to be here.
$991. Can we say $1 trillion yet?
The official number is 991.
Okay.
Yeah.
You were counting.
Nice try.
All right, let's start off big picture with the state of the global economy through the lens of Blackstone. Just curious, your house view on inflation rates, the outlook for the economy, where we're headed? Are we out of the woods yet? If not, where do you see the greatest risks?
Sure. Thanks, Mike. Again, it's great to be here and be with everybody. Who said people don't come to work in New York on Mondays and Fridays? Look at this. We do, I think, with the benefit of the scale of our business and our portfolio companies have a pretty deep trove of sort of data and insights. We've got 230 or so portfolio companies, which have $200 billion+ of revenues and, you know, 12,000+ sort of individual real estate assets. We have a lot of, I think, granular and sort of aggregate information. I, you know, I think on the one hand, these are, you know, external observations, I think corroborated by the insights from our portfolio.
On the one hand, we certainly see a couple positives that we're hopeful about. You know, one is, I think for sure inflation is trending down increasingly in the rearview mirror, as my colleagues and I have said before. I think if you adjust for shelter, which is obviously a lagging component, it lagged on the way up, and we saw that early, and it's lagging on the way down. If you adjust for that, either exclude it or market to market, you know, CPI is basically in the threes. Will continue to head down, although maybe the rate of deceleration will be less. You know, obviously, PCE is a little more stubborn, you know, because of that wage and services component, but we see the direction of travel being down.
The other positive is, you know, economic resilience and the, specifically the resilience of the American consumer overall and, you know, and corporates in America. We said publicly in our corporate private equity portfolio in the first quarter, you know, we saw revenue growth in 13%, or so. That was obviously partly driven by, I think, good sector selection. That and the resiliency of the margins in the portfolio, I think, was reflective of my overall point. You know, a year ago, I frankly, was more, pessimistic about maybe what we would see in terms of margin pressure by the end of the year, early this year, and I was surprised on the upside in terms of stability.
We're seeing input costs in our portfolio, you know, come down a lot, is an old couple percentage points in terms of year-over-year growth in the first quarter. Wage growth moderating in line with what you're seeing externally. Those are two, I think, strong and hopeful positives. On the other hand, as we all know, the cost of capital is going up, and I think you have sort of this, you know, kind of troika of forces at work. One is obviously on the short rate side, you know, 500 basis points in 14 months. That's quite a wild ride. We'll see what happens, you know, in the next month or two in terms of whether there's a pause and another move or not.
I think it's, b y now, internally, we've been counseling each other to kind of underwrite higher for longer, and I think the market consensus, I think, is coming more in that direction. Second, quantitative tightening. It's funny, you know, before 2020, it feels like QT was, like, all we could talk about, and now I don't think we talk about it enough. You know, and since that time, since we stopped talking about it, the Fed balance sheet has basically more than doubled. Now, you know, they're from, like, depending on how you count it, $4 trillion to, you know, just under $9 trillion.
Over the last, you know, two, three quarters, they've basically been on a steady kind of $75 billion a month, you know, runoff of the balance sheet, which is, I think, if you annualize it, like 10%, you know, run rate annual, you know, shrinkage of the Fed balance sheet. That does show up, you know, in markets that we observe. You know, in the agency mortgage market, the Fed, you know, used to be in the QE phase, you know, the marginal buyer of agency mortgages, and now they're a net seller. You see that in terms of the behavior of the market. That's obviously force number two. Force number three is banking challenges, regional banking challenges, and what that will mean over time for credit contraction. It'll mean something.
All in all, you've got these different forces at work. You know, I think it'll take time. These things take time. You know, I think inevitably, it'll deliver the Fed's intended effect of slowing the economy. I would just end by saying, I think, you know, there's a reason to be cautiously optimistic that slowdown could be a more mild one. You know, a more, a downturn will be more shallow. I think, you know, household and corporate balance sheets are in quite good shape. They're quite healthy. You know, the while the stimulus, still has a way to run off in aggregate, where it remains in terms of where it's concentrated is actually in sort of the wealthiest consumers.
A lot of the effect of the stimulus sort of cliff from a saving standpoint, excess saving standpoint for, you know, consumers below that kind of high end has already been felt, and I would say weathered to some degree. I think the view that the downturn could be more mild is now actually being discounted in the market. The market's not been right about discounting a lot of macro scenarios in the last few years, but, you know, they might have this one right, but only time will tell.
It sounds more upbeat than I would have thought.
Oh, you got me.
Are you balanced?
Good afternoon. no. Yeah.
Well, what about CRE? Why don't we talk about that? That's top of mind.
I'm gonna stay upbeat.
Okay. That sounds like a preview of what's to come, right? It's a top of mind concern for folks, just given interest rates a bit higher, headwinds with office and retail sectors, where you guys don't have as much exposure, but just curious your views more broadly on the overall CRE space. We've had banking sector challenges. How do you see this all shaking out? Maybe just remind us of your exact exposures across your equity and also your credit portfolios there.
Sure. We've, you know, been saying this for a few months now, externally, you know, you can't paint CRE with one brush. I think, you know, when you see the acronym CRE, you know, in a press piece, now, you can almost be sure that, you know, it's gonna treat real estate, the industry, the market, this giant market, as monolithic, when in fact, you know, what we've been seeing is profound bifurcation in the underlying performance and trends, of sectors within real estate. I'd say, simply put, the reality is, there is historic weakness in one sector, office in the U.S., traditional office, where we have very little exposure, and I'll talk more about that. Historic strength in multiple sectors where our portfolio is concentrated.
You know, I always say this, but sector selection, you know, always matters for an investment firm. At our scale, it's like a big part of the ballgame. You know, as someone who's now been at the firm nearly three decades, I would say that the work and the job of portfolio construction that our real estate team has done, you know, in the biggest real estate portfolio in the world over the last decade plus, is arguably like the finest work our firm has done, with, like, the highest stakes. Let's break it down. If you start with office, you know, it's got significant secular challenges. Vacancy is over 20% in the U.S.
Obviously, scarcity, debt, capital, very hard to find capital and financing for office. I think the distress may play out slower motion than people may think from, you know, reading the papers or otherwise. It's a fundamentally challenged sector. It's less than 2%. U.S. traditional office is less than 2% of our global real estate portfolio. In our real estate debt area, it's sort of high single digits, there it is, you know, it is ahead of significant equity cushions in most cases. You know, we're talking 60% type loan to values. That's our exposure in a sector that is troubled but is very narrow in our portfolio.
If you compare that to our areas of focus in real estate, where, as I said, you're seeing historic strength. Whether it's logistics, data centers, student housing, and the list actually goes on, you're seeing, you know, vacancy rates in the sort of 2%-3%-5% area, which is, you know, at or actually above sort of frictional baseline vacancies. You're seeing rent increases like in the moment in many of those sectors in the double-digit area. Real momentum and robust fundamentals in those areas. In logistics, that's about, you know, those sectors, including housing, writ large, lodging, which I'll talk about, that's over 80% of our portfolio, well over 80% of our global portfolio.
I'll just tick through it quickly. You know, logistics, unprecedented strength. It's been our number one, you know, investment theme in real estate and actually, therefore, as a firm, you know, for the past decade or so. Rents are growing at 10%-20% year-over-year. Releasing spreads, which is when new leases come up, how much are you increasing the rents, you know, tomorrow versus today? That is running, depending on the part of the world, at 25%-75%. When you think about leases being five, six, seven years in term, and you're upping them by 50%, you can see why.
Built in inflators, that's why you see those sort of year-over-year, 10%-20% aggregate rent increases, and vacancies at, you know, less than 3% globally. We all know sort of the underlying factors from e-commerce and supply chain hardening and so forth, driving that. Data centers, it's another very high conviction area at our firm and in real estate. You know, their vacancies are like 3% versus 9% back in 2019, so there's a real acceleration there. Rents there are growing in the 15% area, market rents. There, of course, you have these profound tailwinds. You know, there's been more data created in the last three years than sort of existed before that time.
AI is basically creating an arms race among hyperscalers. One of the basically shortage of commodities will be around data. That is a mega investment theme from our standpoint. Housing, you know, we own, h ousing has, even within housing, has different subsectors. Multifamily, which is a big exposure for us, student housing, where we're the number one owner of student housing in the U.S., number two in the U.K., affordable housing, those are our sort of three key areas of housing. The area we own zero in is for sale housing, which is where all the pain has been. For multifamily and sort of the rental apartment area, if you step back, you've got structural undersupply.
That is basically our investment thesis post GFC around housing in the U.S. That is going to continue, and it'd be exacerbated long term by the drop in construction from the current sort of credit contraction. In the near term, because there were an increase in starts, you know, a year or a year and a half ago, you will see, I think, temporary increase in supply later this year, and that, combined with some demand softness, will cause some deceleration in that space. If you think about the markets, we're in the Sun Belt and sort of the overall position portfolio and the structural long-term tailwinds, that's a very high conviction sector for us. You know, if you take hotels, lodging, in destination and leisure hotels, it is a very good time.
Double-digit RevPARs. You know, we just announced the sale of an asset in San Antonio, which I can talk about more later. There are areas of weakness, like in urban hotels. You read the article today, which was depressing about hotels in San Francisco. Even within hotels, there's a tale of two cities and those sort of destination, leisure-driven hotels, as opposed to some, you know, traditional urban, full-service hotels serving, you know, business customers. That former category, is, which is where our exposure really is, flourishing. I go through all this because I think it's worth drawing that out, as opposed to, like, CRE is bad. You know, you can listen to my narrative, or you can even, you know, look on your own screen.
You know, the stock market actually reflects this bifurcation. If you look at the bellwether stocks, you know, in office, down, like, 70% since, you know, 2020. In logistics, up 50%. In multifamily, in lodging, up 30%. It's like hiding in plain sight, you know, what's the sort of profound bifurcation happening in real estate. I mentioned this before, but you're gonna have, it's coming, a pullback in supply. At the end of the day, real estate is pretty simple: it's supply and demand. Basically, what you're seeing, if you're in the right sectors, as we are in our portfolio, you're seeing real secular tailwinds long term from a demand standpoint and structural undersupply. We feel really good about it.
When you juxtapose that reality with sort of headlines around CRE, painting it all with one brush, that's where you get a gap between sort of short-term sentiment and long-term fundamentals, and that creates, as it has for 30 years for us, opportunity.
That's a pretty positive setup there. Maybe against that sort of backdrop, you guys have record levels of dry powder, I think nearly $200 billion, that's available for you guys to put to work. Where do you see the most interesting and compelling opportunities to put money to work right now? What are you avoiding? Are you even avoiding CRE, or excuse me, office, shall I say?
Well, there you go.
Office.
You got Freudian conflation.
Yeah.
I'm kidding. Obviously, we've got a, you know, we've got a firm that is not just at scale, but it's broad and diversified. We have a really sort of balanced attack, no matter, you know, what part of the cycle you're in. Today, for sure, I think the headline is: lending is the most compelling area. It's an extremely compelling opportunity today in private credit. It is for sure some of the best risk-reward, you know, we've ever seen, that. Within our credit businesses that they've seen. It's really, I'd say, across the board, you know, of direct origination strategies. I kind of go through the big three.
In direct lending, you know, double-digit returns, you know, for senior secured debt, typically 25%-40% loan-to-value, which means, you know, 60%-75%, you know, of asset value underneath you in equity. A good credit, generally, yes, you know, this depends in part on M&A volumes, private equity deal volumes. Those are more muted now. What I would say is, I think there's some signs those are coming back, and overall, you know, it's good work wherever you can get it. On real estate debt, specifically in our BREDS business, which is the core areas, opportunistic real estate debt.
You know, we are seeing mid-teens, in some cases, high teens, you know, effective returns and yields, with substantial equity cushions, sort of 60, you know, 50%-60% type loan-to-values. We're applying those strategies in our high conviction real estate areas. In asset-backed finance or ABF, which I think we may talk about more, you know, there, you've got investment-grade rated, you know, high single-digit yields, creating excess spreads of, you know, around 200 basis points or so, compared to the comparable corporate bond. We're, you know, we're doing it at scale, with our insurance clients, you know, in partnership with other financial institutions.
It's a, area that's growing, that has secular tailwinds, and is, in the current environment, I think, very attractive. That overall, you know, credit, private credit, lending money, that is a very rich area. On the equity side, you know, if you go through our major strategies in real estate, I would just say we're. I just articulated what some of those themes are. You know, we're really leaning into, you know, our high conviction thematic areas, but now we're getting to apply those, sort of themes in more dislocated situations. You're seeing, not surprisingly, more, you know, U.S., Europe, around the world, more situations where you have stressed sellers or sellers who are feeling the pressure to do something, as we always have, as we have been for three decades, you know, for anything at scale, you know.
Given the information advantage we have around, you know, how assets are performing in almost every market in the world, you know, we can move quickly bilaterally for a seller in that position. You know, we've done multiple logistics deals, you know, in the past 12 months or so. Europe in particular has been, I think, particularly fertile, based on different situations, U.K., continent. We did 1 in Canada, we've done others in the U.S. That's, I think, a good example of take our highest conviction theme.
We're sticking with it 'cause the, the, narrative, you know, the thesis, it's intact, but now we're having a neighbor, and I think, more interesting, context to apply them in. In Tac Opps, you know, it's, it's not quite the moment now, but over time, we think, this kind of environment will be a sweet spot for Tac Opps for different reasons, including, structured equity is one of their, like, core strategies. Over time, as you'll have, you know, good companies with good sponsors who do need to refinance, and the debt capital available to refinance, you know, their enterprise value, you know, may not quite be enough to fill out the full debt stack that they need to refinance.
That's where structured equity, you know, can come in between and create really interesting risk-adjusted return over time. I think that is sort of percolating. Then I'd say finally, in corporate private equity, you know, while again, volumes are somewhat lower, I think there is some momentum building potentially. For us, and we've seen this movie before, the ability to, you know, execute large off-the-run, often bilateral deals, very often, you know, in public company situations, whether it's public to private, or a divestiture or carve out from a public company, sometimes in partnership with them, where they'll retain a stake, like in the case of Emerson's Climate Technologies business, as with Thomson Reuters back with Refinitiv a number of years ago. That's a very good environment for our private equity business.
I would just say overall, to try to find good businesses that you can buy well. You know, areas to avoid, I would say, you know, value traps or well, that's what I would call them, or things that are cheap for a reason. You do have, obviously, significant sort of, you know, whether it's technology-driven or otherwise, secular dislocation to come, and so you have to be careful that something is cheap, not just because the market may be cyclically down, but because the fundamentals are challenged.
I'd also say something we're seeing increasingly when we look at businesses and credit on the equity side, which is, which we all are dealing with, you know, companies that are or have been or are overearning from COVID, and that is that pervades a lot of businesses' sort of financial performance in the last year or two. Pulling that apart, I think is, it's a sort of a watch-out in our due diligence strategy. Overall, I'd say from a deployment standpoint, we're patient. Our business model was built for times like this. This is the power of having long-term locked-up capital. It allows you to basically be patient around, you know, selling things at the right time.
Obviously, allows you to have capital at times when capital is short. That's why, you know, history says that the sort of couple of years coming out of a cycle bottom, which may well be the next couple of years, are the best times to invest, that are where sort of the highest returns come from.
Well, speaking of capital, why don't we turn to fundraising? Let's talk about how the recent market dynamics have impacted your fundraising efforts. You had previously set out a $150 billion target for your next set of drawdown funds, which I think you've made pretty good headway against, about 70%, I think, completed at this point. Maybe you could correct me on that. Remind us what's left in terms of those flagships. Where are we in terms of timing, magnitude of those? Beyond the flagships, what other strategies could we see Blackstone raising?
Sure. You know, we had our, two or three weeks ago, most of our senior team was in Florida, where we had sort of a week full of LP annual general meetings with almost all of our equity, private equity strategies, real estate, and so forth. We, you know, sort of were immersed with interacting with our core clients. I would say it only reinforced the fact that sort of zooming out, that customers are happy with alternatives.
It's very different from, you know, I think post 2008, frankly, the early years when I became CFO, 2015 onward, where there were these sort of, you know, secular question marks around, you know, clients' belief and commitment in the asset class. We are in a very different place now. I think you have, depending on the strategy, in some cases where there is, there may be, with some subset of LPs, some constraints on allocations. It's really because I think for the most part, they feel they are overallocated relative to their targets.
In some cases, for example, private equity among, for example, North American plans in particular, it's actually because the numerator and denominator effect, those strategies have been among their best performing, but the rest of their portfolio has been under more pressure from a value standpoint, so they find themselves more overallocated. That's really, I think, where you see the, what I would call temporal, sort of constraints on that. In a number of other areas, private credit, which obviously I mentioned, everyone's talking about these days, infrastructure, energy transition, secondaries. There is also a lot of belief in those areas, and I think more room to allocate and more, I think, tailwinds around allocation.
People talk about fundraising and, you know, a more challenging environment, and I think you can generally say that's right. I also think it's sort of strategy specific, and it's all, you know, with the underlying that sort of the fundamentals being, I think we've evolved to a place where the customer base on a global basis, has a lot of confidence and belief in the asset class, and long-term allocations, I think, will structurally increase in aggregate, not the opposite. In turn, you mentioned our $150 billion drawdown cycle, 70% of the way through that. Actually, although from a fee standpoint, those fees will sort of lag in terms of activating into our P&L.
That's to come, which is a positive.
A bit less than the 70%, correct?
Correct, yes. There, we feel very good about our progress. As we said on our earnings call, we expect to be sort of substantially complete, not every last strategy and every last dollar, but substantially complete in the context of the 150 target in the first half of next year. Obviously, great success with the Global Real Estate Fund, $30 billion. The great success with the secondaries fund, $22 billion, both, you know, the biggest funds of their kind ever raised. Right now, we are in progress on our European Real Estate Fund, BREP Europe, which we, you know, we recently launched our real estate debt platform. Obviously, great opportunity for that, and our corporate private equity fund.
You know, we also have still to come as part of that cycle, our life sciences successor vehicle, our GP Stakes fund, and that's sort of the balance of it. We also, though, I would say that 150, 18 funds was sort of defined a couple of years ago. We obviously, to your question, continue to have other products, both in the sort of in the hopper, in the pipeline that we're launching on. One of note right now is a, you know, is an institutional direct lending strategy. Stepping back, we have multiple engines of growth, institutional, retail, insurance, a wide array of platforms, and as I think we've shown over time, you know, a very good innovation engine.
There will be more behind that. Over time, we feel really good about the long-term momentum.
You mentioned retail. Why don't we dive in a little bit there into the private wealth channel? Just curious, what's your latest pulse on the private wealth channel? With fundraising below the peak levels, what will it take for the inflows to reaccelerate, and what's the long-term vision at Blackstone for the private wealth channel?
Well, I think, because, ultimately people are focused on near-term flows over time follow performance. That to us is the true north and, you know, over four decades of doing this, and no different from the retail area, even though the retail area, I think, especially with monthly flows, reacts, you know, with a faster twitch, you know, from a flow standpoint, to, I think to the sentiment, the overall market sentiment and the sentiment of the moment. Obviously, that's been, I think, reflected in the last half year or so. Back to performance being kind of where it begins and ends, it's worth, I think, reiterating, you know, in BREIT, it's worth reiterating we've really delivered for customers. We say it a lot, but it's true. In BREIT, since inception, a 12% net return.
You know, we've outperformed the overall REIT index, the public REIT index, by, like, 1,300 basis points over the last 12 months. There is, by the way, a lot of, in our view, you know, there is, I think, compelling embedded value. I mentioned, you know, we announced in the last few days, selling a hotel asset in San Antonio out of that portfolio. It's something we bought just before COVID. We'll over double our money, make a $200 million profit. The price is at a 7% premium to our most recent carrying value, and over 20% premium to what I would call the unaffected value from a few months ago before we were sort of entering into the sale discussion.
In terms of the positioning of the portfolio, the marks, and the sort of embedded value, I think that's an example of the power behind that BCRED, sort of our, you know, sister flagship product, 9% inception to date returns. Currently, a portfolio yield of over 10% back to the sort of direct lending, you know, story. Performance really good. The feedback from the overwhelming, you know, majority of our customers is really positive. We're happy and staying put. Now, as I mentioned, flows are impacted by, you know, the market context, which influences sentiment. You've obviously seen an elevated level of redemptions for both products.
On inflows, now I would note on the, on the redemption side, on BREIT, the most recent last two, three months, you know, have been at a materially lower level than the peak levels of redemption requests back at the beginning of the year. On the inflow side, I would highlight that, you know, BCRED, in the second quarter, had inflows of $1.8 billion, which is up 60% over the prior quarter. We talk about flows being influenced by sentiment, the broader sentiment, around specific strategies. What you're seeing in private credit, which we've been talking about, is, this, I think, increasingly positive sentiment, not just among institutional investors or insurance investors, but also among retail investors. At least that's, I think, what the current performance reflects.
Look, I think stepping back. You know, private wealth, in the last two years, we've basically doubled the business to almost a quarter of a trillion in assets, $241 billion or so. It's been, I think, an extraordinary success in the last five or six years, and it is still very early days in the growth story from a secular standpoint. You know, individual investors, it's a low single-digit sort of percentage of penetration relative to sort of global wealthy people and their savings. That is a significant and positive long-term driver of our growth as a firm, and we think we're the best-positioned firm in the world to capture that opportunity.
Great. We have about four minutes left. I want to touch upon private credit, then I have a sort of big picture vision question for you. Just on the private credit side, where do you see the biggest opportunities today for Blackstone, from portfolio sales to originating new loans? How do you sort of scale this? I know you had mentioned on the last earnings call, talking about a golden moment for private credit. Jon Gray had mentioned that as well. Maybe you can just help flesh out how you see the opportunity set and how you see the role of private capital helping solve some of the banking sector challenges.
You know, in private credit, I think, an amazing confluence of three megatrends behind, like, one megatrend, which is the retrenchment of banks, bank retrenchment. This fundamental, I think, evolution around what I would call fixed income replacement, traditional fixed income replacement with alternative fixed income. Also the transformation of the insurance industry's asset management model. There's some overlap among those three, but those are three really powerful megatrends. Then for private credit, you know, we're delivering that credit product in long-term, committed fund structures that are actually better and safer vehicles to do that in than the traditional bank balance sheet model. I think the events of the last quarter or two are, you know, showing that.
Ours is a storage model, theirs is a moving model. Theirs are dependent on, you know, daily funding models based on deposits. Ours are generally based on long-term locked-up capital. The Fed, in their, you know, sort of semi-annual, I think, the FSOC report on, you know, systemic risk, basically, you know, you can see it came out in May, in talking about private credit, basically, I think, validated that. It's early days, as I mentioned in these other areas. It's very low penetration in terms of private credit relative to a massive TAM. It's like a trillion and a half versus a, you know, you know, 85 trillion+ global market. It's all about, you know, direct origination.
For us, we leverage a credit business that across the firm is $350 billion of AUM. It's our credit and insurance segment, then also, our real estate credit, AUM, which is within our real estate segment, but it adds up to $350 billion, 800+ you know, people in our organization in those businesses. It's a real platform and machine we've built, the future is very bright. On partnership opportunities, that's really, and I think you're referring to, Mike, most focused on asset-backed finance.
Whether it's in, you know, consumer finance, or, you know, infrastructure, credit, fund finance, I think what you have with sort of the regional banking dynamics, that, you know, their sort of raison d'être historically, has been having that local customer relationship and the ability to service them. The challenge now is, what used to be a localized funding model around local deposit taking is now more in question. This is still their core competence. We can help them on the, on the fund side, on the funding side, because those are assets that, you know, we have the right capital to invest in and to hold. I think in terms of partnership opportunities, that's what you'll be seeing over time.
All right, final question, and 60 seconds are left, or last as we wrap up here. Blackstone closing in on just shy of $1 trillion of AUM. Where do you see the firm over the next three to 5 years? What are some of the biggest opportunities, and why is now a good time to buy shares in Blackstone?
Well, I think we try to think in the very long term, and our goal is not just to be, you know, a really good asset manager, it's to be a great company. That's why we appreciate when Morgan Stanley, you know, ranks us as one of the top 30 franchises, regardless of industry. You know, Steve's an institutionalist. We're, he and we are committed to building a long-term, enduring business and to rewarding shareholders over the long term. I've said it in a bunch of different ways, but there and hopefully you are convinced, but there are profound secular tailwinds behind our business, in multiple areas.
We think we're the best-positioned firm, you know, to capture that based on brand and product development abilities, our culture, the support of our clients, and so forth. Do all that with a financial model that, you know, has the third-best margins, third highest margins after the two credit card companies in the, you know, 100 biggest companies in the U.S. You know, has a balance sheet light, asset light model, and is a cash flow machine, and we return 100% of our earnings, basically in dividends and buybacks. All while undergoing an earnings transformation, which, to your question, about the next three to five years, we believe will continue around increasing earnings quality and earnings scale.
All of that, you know, in, and sort of, wrapped up in a, you know, from a kind of stock market standpoint, you know, we've been outgrowing the S&P by double, basically. We have a dividend yield that's three times the market, but we trade at about a market multiple. That's, I think, with a significant part of our earnings, coming from realizations, you know, in hibernation. When you think about the vision and I think sort of the compelling story behind our company, take those fundamentals I went through, and then that sort of, positioning as a stock, and, you know, we feel and hope you all feel good about the future.
Great. We'll have to leave it there.
Okay.
Thank you very much, Michael.