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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Thank you so much

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Speaker 1: for joining us here on Bloomberg TV.

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Speaker 2: It's great to be here, Great to be in Rome.

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Speaker 1: It is great to be in Rome.

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Speaker 2: Now.

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Speaker 1: There's a lot of conversations about, of course, the strength

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Speaker 1: of this economy, the strength of economies in general, and

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Speaker 1: how that plays out in the markets. What do you

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Speaker 1: worry about, What is the biggest mismatch out there?

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Speaker 2: Well, it's interesting.

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Speaker 3: One concern would be that central banks having been too

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Speaker 3: dubvish early on in terms of not raising rates, not

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Speaker 3: shrinking their balance sheets fast enough, that as inflation is

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Speaker 3: coming down and I think they have air cover that

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Speaker 3: they're going to be patient because they don't want to

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Speaker 3: be too quick this time to stimulate things to bring

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Speaker 3: rates down, and so I think.

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Speaker 2: We could see a little more of a slowdown.

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Speaker 3: That's a possible risk out there as investors.

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Speaker 2: It's interesting.

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Speaker 3: I would say one of the things I worry about

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Speaker 3: is that we wait too long, particularly in some of

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Speaker 3: the sectors where there's been a bigger.

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Speaker 2: Decline in value and people are more cautious.

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Speaker 3: So we had a meeting this week with our growth

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Speaker 3: equity team and we were talking about some of the

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Speaker 3: opportunities in that space.

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Speaker 2: A lot of investors are obviously cautious.

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Speaker 3: They're commercial real estate, which I'm sure we'll talk about.

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Speaker 3: You know, the sentiment has gotten quite negative and the

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Speaker 3: fundamentals feel like they're bottoming. So I think as investors

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Speaker 3: sometimes one of the risks is you miss it by

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Speaker 3: being overly cautious. And I think now is probably a

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Speaker 3: good time before rates come down to.

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Speaker 1: Move but move on one and again. Do you have

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Speaker 1: an allocated capital that you want to try and get

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Speaker 1: in as soon as you think.

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Speaker 3: You know, there's no sort of specific like we have

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Speaker 3: a budget to spend this much.

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Speaker 2: It's just more directional.

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Speaker 3: It's that you know, in fixed income, the spreads and

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Speaker 3: a lot of asset classes are still wide by historic standards.

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Speaker 2: Base rates are still pretty high.

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Speaker 3: So that's a good area being a capital solution provider today.

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Speaker 3: Helping people get some liquidity make sense, people who need

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Speaker 3: to de leverage, working with the banks and helping giving

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Speaker 3: them some capital relief. And then particularly in sectors where

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Speaker 3: we have high conviction, in digital infrastructure, in green energy

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Speaker 3: and life sciences leaning in so I.

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Speaker 2: Would say it's pretty broad based.

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Speaker 3: And then specifically on real estate definitely here in Europe,

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Speaker 3: the sentiments so negative, try to move faster and.

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Speaker 1: So, but are there opportunities actually in commercial real estate

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Speaker 1: and you have to fight them off to some of

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Speaker 1: your formidable competitors as well, because now is the right

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Speaker 1: time to get back in.

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Speaker 3: There are definitely opportunities. I would say the sentiment is

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Speaker 3: more negative. The competition is not as great as normal.

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Speaker 3: Real estate's obviously been hit by two big forces here.

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Speaker 2: One work from home, which has really.

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Speaker 3: Hit the office sector, and the second is the rise

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Speaker 3: and interest rate, which has caused cost of capital to

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Speaker 3: go out up and cause multiples in real estate to

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Speaker 3: come down, cap rates to go up.

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Speaker 2: And so what you want to do in this kind

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Speaker 2: of environment is look through that.

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Speaker 3: Because that's occurred, there are going to be tons of

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Speaker 3: headlines of market transactions that were priced in a different.

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Speaker 2: World that will run aground.

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Speaker 3: Now you'll read about them in banks, maybe insurance companies.

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Speaker 3: But on the ground, we're seeing cost of capital start

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Speaker 3: to come down, spreads are starting to tighten, and new

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Speaker 3: constructions coming down dramatically. So in sectors that we really like,

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Speaker 3: like logistics benefiting from e commerce, digital infrastructure, student housing, hotels,

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Speaker 3: we think there are opportunities, and we've done a number

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Speaker 3: of multi billion dollar transactions.

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Speaker 1: But is there a danger that something goes under in

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Speaker 1: the commercial real estate space that infects others that could

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Speaker 1: snowball into a systemic issue.

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Speaker 2: Even I don't think it's systemic.

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Speaker 3: I think there are financial institutions that have assments are

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Speaker 3: loans that were made in a different period of time,

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Speaker 3: and we've seen that most recently in New York Community Bank,

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Speaker 3: and those institutions are going to have to mark those

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Speaker 3: assets to market. Those loans will come due, there'll be

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Speaker 3: needs for new capital. There may be some institutions you

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Speaker 3: get into more trouble. I don't think this is like

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Speaker 3: eight to nine in terms of the scale of what

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Speaker 3: we were facing, but I do think there'll be some situations.

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Speaker 2: But that's what creates the opportunity.

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Speaker 3: It's because the perception is so negative, the headlines are negative,

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Speaker 3: and yet the value decline has occurred. I'm not saying

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Speaker 3: there's some v shape recovery, but when you get into

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Speaker 3: this bottoming period, that's when you want to try to move.

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Speaker 1: So when you say getting into situation, this is what

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Speaker 1: company is actually going.

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Speaker 3: Bust, Well, there are definitely assets that were financed in

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Speaker 3: a different area. Particularly you focus on commercial real estate

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Speaker 3: because there's been a more profound impact, certainly in the

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Speaker 3: office sector, and so I think that will create opportunities.

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Speaker 3: We bought US seventeen billion dollar mortgage loan portfolio with

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Speaker 3: the FDIC from Signature Bank.

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Speaker 2: Those are the kind of opportunities.

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Speaker 3: There may be more of those that emerge, But I

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Speaker 3: think saying that this is going to lead to a

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Speaker 3: much broader systemic issue, I think that would.

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Speaker 2: Be too much.

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Speaker 1: I mean there's growing competition, of course in the asset

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Speaker 1: management world for retail pe. How does that change how

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Speaker 1: you do business?

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Speaker 3: Well, I think at the end of the day, if

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Speaker 3: your customers are pension funds, sovereign wealth funds, insurance companies,

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Speaker 3: or individual investors, at the end of the day, you

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Speaker 3: have to deliver good returns. It's like a restaurant serving

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Speaker 3: good food, and if you don't do that, the customer

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Speaker 3: is going to go elsewhere. Now, the distribution format is

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Speaker 3: different because you're not talking to a couple hundred customers

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Speaker 3: talking to a couple hundred thousand customers. The structure of

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Speaker 3: the vehicles can be a little bit different in terms

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Speaker 3: of their liquidity, their yield, their tax structure. But to me,

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Speaker 3: the end product is the same. And what we're trying

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Speaker 3: to do is leverage the enormous scale and in sites

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Speaker 3: a Blackstone has in terms of what we see in

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Speaker 3: the world, the people we have on the ground, and

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Speaker 3: then generate more favorable returns and then deliver that to

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Speaker 3: different underlying customers.

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Speaker 2: But it's, at the end of the day, really the

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Speaker 2: same product.

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Speaker 1: But isn't isn't it in part fundamentally changing the industry

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Speaker 1: or at least the business model.

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Speaker 3: I do think the business is evolving. I mean, if

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Speaker 3: you went back and you said, what was this business

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Speaker 3: ten or twenty years ago, it was private equity, real estate,

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Speaker 3: private equity and opportunistic credit. You were seeking to get

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Speaker 3: twenty percent gross returns fifteen net. And now what you're

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Speaker 3: seeing is, as we've moved into some of these lower returning,

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Speaker 3: longer duration vehicles, core plus real estate, infrastructure, performing credit,

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Speaker 3: the universe of potential investors gets much larger, the universe

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Speaker 3: of potential assets to invest in gets much larger, and

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Speaker 3: so a firm like ours and some of our competitive

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Speaker 3: firms have benefited and grown a lot in scale. I

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Speaker 3: think the good news is we're still pretty early days

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Speaker 3: in this process.

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Speaker 1: So when do you see it coming to maturity?

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Speaker 3: I would say coming to maturity if you just put

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Speaker 3: some numbers around at the industry's twelve or thirteen trillion dollars,

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Speaker 3: which sounds big, certainly relative to where it was a

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Speaker 3: decade ago, But those seven big stocks are bigger.

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Speaker 2: Than the entire industry.

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Speaker 3: And when you think about commercial real estate, residential real estate, infrastructure, equities,

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Speaker 3: fixed income market, the scale.

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Speaker 2: Of this stuff hundreds of trillions of dollars.

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Speaker 3: So I know it's hard because the industry has grown

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Speaker 3: so much, but I still think we have a long

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Speaker 3: way to go, and that's what gives us a lot

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Speaker 3: of optimism. But again, growth is important. Delivering performance is

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Speaker 3: what really matters.

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Speaker 1: But how again, how will I guess the pe world,

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Speaker 1: you know, shake out? If interest rates stay at these

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Speaker 1: higher levels still not high by I guess historical staff,

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Speaker 1: but we're certainly not used to them.

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Speaker 3: Well, I think if rates stay elevated for an extended

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Speaker 3: period of time, that will slow the transaction recovery process,

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Speaker 3: but eventually it will recover. If you go back to

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Speaker 3: the early nineties, M and a volume fell fifty percent.

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Speaker 3: After the financial crisis, it fell fifty percent, and it

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Speaker 3: fell fifty plus percent again the last couple of years. Eventually,

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Speaker 3: something's going to give. Eventually, the FED and other central

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Speaker 3: bank policy will force the economy to slow enough, inflation

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Speaker 3: to slow enough, the lower rates, transaction.

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Speaker 2: Activity will pick up.

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Speaker 3: And I'd say what's been remarkable is there have been

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Speaker 3: a lot of people predicting that private equity would suffer

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Speaker 3: it only worked in low rate.

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Speaker 2: Environment and so forth.

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Speaker 3: But I think the performance has been remarkable and the

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Speaker 3: level of distress has been remarkably low. And I think

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Speaker 3: people underestimate the strength of the business model, what's done

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Speaker 3: to help grow these companies, and so I continue to

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Speaker 3: believe alternatives will grow. And when you talk to our customers,

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Speaker 3: almost all of them want to grow their exposures. So again,

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Speaker 3: it's been because of the performance. If we and our

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Speaker 3: competitors continue to deliver, then I think the business still

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Speaker 3: grows regardless if rates are cut next quarter.

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Speaker 2: Or next year.

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Speaker 1: How's a fundraising environment right now.

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Speaker 3: Well, I'd say the fundraising environment is getting better. It's

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Speaker 3: still the institutional side is still a little bit slower,

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Speaker 3: and that's no surprise. Right, there's a flywheel that needs

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Speaker 3: m and a volume and IPO volume for capital to

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Speaker 3: come back.

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Speaker 2: And when that.

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Speaker 3: Happens, that creates new realizations for them, the investors, and

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Speaker 3: they can allocate more.

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Speaker 2: That's been slower, and so it's a little tough around.

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Speaker 3: The fundraising environment a little slower obviously in real estate.

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Speaker 3: Maybe in some cases over there targets and private equity

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Speaker 3: more enthusied about private credit or secondaries. But I would

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Speaker 3: say it definitely feels better than it did six months

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Speaker 3: ago when rates were up at five percent, twelve months

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Speaker 3: ago when we had Silicon Valley Bank, and then I

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Speaker 3: think individual investors are feeling more confident given what's happening

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Speaker 3: in markets, and insurance clients are increasingly realizing there's a

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Speaker 3: benefit to taking a portion of their portfolio and moving

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Speaker 3: it into private credits.

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Speaker 2: So I'd say there's a lot of openness to the

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Speaker 2: asset class.

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Speaker 3: I think market stability rates coming down at some point

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Speaker 3: here will certainly help.

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Speaker 1: How often do you get asked about bee Reads?

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Speaker 3: I get asked a lot, particularly about the press from

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Speaker 3: the press, and what I'd say about bee Read is

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Speaker 3: the basic premise was we were going to create a

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Speaker 3: product for individual investors to invest in private real estate.

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Speaker 3: And what we wanted to do was deliver returns that

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Speaker 3: were in access to the public markets in a semi

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Speaker 3: liquid vehicle. And if you look over the last seven

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Speaker 3: and a quarter years since we started, we've delivered basically

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Speaker 3: double the public market for six plus of those years.

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Speaker 3: We gave monthly. For the last year or so, it

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Speaker 3: took about four months. Most recently, we've now said we're

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Speaker 3: fully meeting the needs in the latest month in terms

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Speaker 3: of b RE redemptions. And it's essentially the basic trade.

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Speaker 3: The product in our minds has worked exactly as intended,

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Speaker 3: which is you are making some trade off versus public markets,

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Speaker 3: and what we need to do is deliver for the customers.

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Speaker 3: And the key has been in that case, we invested

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Speaker 3: in the sunbelt of the US, in data centers, in

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Speaker 3: student housing, in logistics, in a bunch of great areas,

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Speaker 3: and we hedged out the balance sheet long term.

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Speaker 2: And so if we can deliver performance again, that's what matters.

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Speaker 3: And I think the customers are going to look back

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Speaker 3: at this and say, Wow, these semi liquid products they

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Speaker 3: can work not only in the good times but in

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Speaker 3: more challenging periods, and I think that's the most important thing.

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Speaker 1: But going forward, are you expecting more gating to come

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Speaker 1: on this?

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Speaker 3: I don't want to get in the prediction business, but

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Speaker 3: certainly as you have positive as the real estate market

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Speaker 3: bottoms here, as rates start to come down, as spread

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Speaker 3: start to tighten, as the FED at some point here

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Speaker 3: starts to cut and we have this lack of new

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Speaker 3: supply that should be more constructive for commercial real estate,

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Speaker 3: and we would think that's a positive for be reate.

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Speaker 1: What's the biggest opportunity out there? So, I know we

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Speaker 1: spoke a little bit about what concerns you, What are

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Speaker 1: you excited about?

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Speaker 3: Well, look, what's happening in AI and digital infrastructure is

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Speaker 3: pretty amazing if you think about it. I was at

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Speaker 3: dinner with some very savvy investors and they said their

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Speaker 3: basic ideas follow the GPU and in the physical world,

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Speaker 3: that GPU comes at a data center.

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Speaker 2: And so what that means is we need to.

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Speaker 3: Build a lot more of those for these large language models.

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Speaker 3: And we've invested. I think we probably invested more capital

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Speaker 3: last couple of years than anyone in this space, and

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Speaker 3: that's worked out extraordinarily.

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Speaker 2: Well.

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Speaker 3: We have a terrific company QTS that we privatize two.

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Speaker 2: And a half years ago.

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Speaker 3: The leader there, Chad Williams, done an extraordinary job. We

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Speaker 3: partnered with Digital Realty on another subset of assets. We've

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Speaker 3: done a bunch of financings and so forth. That's super

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Speaker 3: exciting because the demand is so great now. It is

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Speaker 3: going to lead to some really interesting questions about power,

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Speaker 3: and those are going to have longer term societal questions,

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Speaker 3: but in the near term there's a real race to

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Speaker 3: build these things, and I think for us and our

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Speaker 3: investors an opportunity to deliver outside returns.

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Speaker 1: Thank you so much for joining us today, John.

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Speaker 2: Thanks for being here. Great to see you. Franci