Speaker 1: Bloomberg Audio Studios, podcasts, Radio news John This morning, Blackstone
Speaker 1: posted a twenty five percent jump in distributable earnings and
Speaker 1: a lot of this was due to retail activity flying
Speaker 1: into Blackstone more and more. How far does this trend
Speaker 1: go with more retail investors coming into private funds, especially
Speaker 1: in the middle of all of this uncertainty.
Speaker 2: Well, Shanale is always great to be with you. I
Speaker 2: would just start with the quarter. It was tremendous for us.
Speaker 2: First off, we delivered for our investors, that's the most
Speaker 2: important thing. We had the most fund appreciation in nearly
Speaker 2: four years. We delivered for shareholders, as you noted, with
Speaker 2: strong growth and earnings per share. We also saw another
Speaker 2: fifty two billion dollars of inflows. And what gets us
Speaker 2: excited is we've got some cyclical tailwinds here in terms
Speaker 2: of deal activity picking up as we look into the
Speaker 2: new year, and then some of these secular growth trends
Speaker 2: in infrastructure, in private credit and in private wealth, which
Speaker 2: you noted, and I think that area still has a
Speaker 2: lot of running room.
Speaker 3: It's early days.
Speaker 2: If you think about our institutional customers, they are about
Speaker 2: a third.
Speaker 3: Allocated two private assets.
Speaker 2: And yet when we look at individual investors, they've got
Speaker 2: just one two percent allocated to private so it's a
Speaker 2: big world and we've done a very good job in
Speaker 2: that area too. The performance of our products has been exceptional,
Speaker 2: so the market potential are positioning our brand, the breadth
Speaker 2: of what we do, the products we've offered to track record.
Speaker 2: We think that sets up for a great outcome over time.
Speaker 1: John, how much are you feeling certain and confident about
Speaker 1: the second half of the year given that there are
Speaker 1: still uncertainties around the administration's trade deals.
Speaker 3: Well, it's interesting.
Speaker 2: Ninety days ago we talked about this and we have
Speaker 2: said consistently to sort of be a little bit patient,
Speaker 2: let this tariff diplomacy settle. We have seen good progress
Speaker 2: in terms of deals made with the UK and Japan
Speaker 2: and Vietnam, and there's sort of a contour of what
Speaker 2: these deals will look like.
Speaker 3: It's obviously not a straight line.
Speaker 2: We could have some more bumps here in early August,
Speaker 2: but I think market participants, businesses are beginning to get
Speaker 2: a sense that, you know, there will be resolution and
Speaker 2: that six twelve months from now, tariffs and tariff diplomacy
Speaker 2: will not be the main thing. And the US economy
Speaker 2: has shown incredible resilience, and at the same time we
Speaker 2: have this AI revolution coming towards us, huge investment around that,
Speaker 2: and that and the productivity gains that should come give
Speaker 2: us a lot of confidence.
Speaker 3: It's never a straight line.
Speaker 2: But there are a lot of good things when you
Speaker 2: sort of look out over the horizon, particularly as we
Speaker 2: get through some of these terriffics issues.
Speaker 1: You mentioned deals a little bit earlier, but I want
Speaker 1: to note that realizations for the second quarter were just
Speaker 1: sixty three percent of what they were just four years ago.
Speaker 1: The deal market industry wide has been slow to come
Speaker 1: back in terms of private equity exits in particular, how
Speaker 1: fast and heavy could it come back in the second
Speaker 1: half of the year and when will they be materially
Speaker 1: showing more IPOs and more M and A among portfolio
Speaker 1: companies for Blackstone and others.
Speaker 3: Well, Shanala, You're absolutely right.
Speaker 2: It has been a tough three years for realizations. They've
Speaker 2: been running down about two thirds m and A and
Speaker 2: IPOs generally, that activity capital markets that ties to realizations
Speaker 2: now for an extended period of time. But as we
Speaker 2: look forward, we are seeing good signs. The equity markets
Speaker 2: back at record highs. Debt spreads are back to pre
Speaker 2: Liberation day levels, the economies hanging in there. We've got
Speaker 2: a more favorable regulatory environment for in a and there's
Speaker 2: a strong desire to do transactions. So when we look
Speaker 2: at our portfolio, we see an IPO pipeline. That's the
Speaker 2: biggest since it's been in twenty twenty one. We did
Speaker 2: an IPO in Europe a couple of weeks ago our first.
Speaker 3: And many years.
Speaker 2: When we look in our dead area, the number of
Speaker 2: new credits we're screening is up fifty percent from year end.
Speaker 2: All of that is positive, but I would caution that
Speaker 2: it takes a bit of time. So getting an IPO done,
Speaker 2: of bringing a company out for sale, that activity is
Speaker 2: definitely going to pick up.
Speaker 3: As we move towards the end of the year.
Speaker 2: You're going to see exit activity, but that itself, it's
Speaker 2: like bringing plane out to the runway.
Speaker 3: We'll take a bit of time, but the.
Speaker 2: Path of travel here looks good, and I do think
Speaker 2: we'll see a step function increase in transaction activity in
Speaker 2: the capital markets in the second half.
Speaker 1: I realize you're probably hesitant to talk about particular deals,
Speaker 1: but you are sitting on what was supposed to be
Speaker 1: one of the year's biggest IPOs and others of Medline,
Speaker 1: How long would it take to get a company like
Speaker 1: that back to market? What would you need to see
Speaker 1: before you had the ability to bring that to an IPO.
Speaker 2: Well, we're never going to talk about specific companies, but
Speaker 2: Medline is a terrific business, and we own a number
Speaker 2: of other terrific businesses, and there are often considerations to
Speaker 2: individual businesses in terms of operational things, transactions, other reasons
Speaker 2: why you make decisions.
Speaker 3: But it's also, as we've talked about, a function.
Speaker 2: Of the market backdrop, and as the equity market stay healthy,
Speaker 2: as the IPO market grows, it's a little bit of
Speaker 2: a magnet pulling things in. So to me, on some
Speaker 2: of these great companies we own, it's really a question
Speaker 2: of when, not if, and when we think it's the
Speaker 2: right time, we'll do it. Market conditions getting better is
Speaker 2: obviously very helpful for our business.
Speaker 1: Now, I want to read you a quote from Oppenheimer
Speaker 1: off the heels of your results this morning. They said
Speaker 1: blacks Zone is deploying more in real estate than it
Speaker 1: is realizing, indicating some bullishness on its part as it
Speaker 1: puts more money to work than it's taking off the table.
Speaker 1: Do you agree with that categorization? Can you give any
Speaker 1: color around how bullish you might be?
Speaker 3: I would agree with that characterization.
Speaker 2: I guess what I'd say is real estate has also
Speaker 2: been through a tough patch here now for three and
Speaker 2: a half years. It was a combination of COVID in
Speaker 2: the office market and then just the rising cost of capital.
Speaker 2: Interest rates went up a bunch, and so multiples came down.
Speaker 3: In real estate, cap rates went up.
Speaker 2: But we're beginning to see some promising signs as we
Speaker 2: look forward. We're seeing new supply come down pretty sharply,
Speaker 2: and that takes a bit of time because of the
Speaker 2: lag between construction going down and new deliveries. That's going
Speaker 2: to start to show up in the fundamentals as we
Speaker 2: head towards the end of the year into next and
Speaker 2: cost of capitals coming down, borrowing costs, spreads, base rates.
Speaker 3: That's helpful.
Speaker 2: And we're seeing the early signs of transaction activity starting
Speaker 2: to accelerate, particularly amongst smaller assets. The CMBs markets up
Speaker 2: something like forty percent year to date, and so real
Speaker 2: estate's a cyclical business. Apartment demand, logistic demand, These things
Speaker 2: are not going away, but you have to work through
Speaker 2: this cycle.
Speaker 3: We're at that point.
Speaker 2: We're getting closer, I think, to this tipping point where
Speaker 2: the market sort of bottomed eighteen months ago. We talked
Speaker 2: about that then, we said it wouldn't be a v
Speaker 2: shape recovery.
Speaker 3: That's what's happened.
Speaker 2: But when we look out over the horizon, things certainly
Speaker 2: look better for real estate, and of course, the way
Speaker 2: we react to that is by trying to deploy capital
Speaker 2: ahead of that recovery.
Speaker 1: What you're speaking to is an easing of conditions before
Speaker 1: we've even seen successive rate cuts this year from the
Speaker 1: federal reserves. Obviously, the President has been very vocal for
Speaker 1: his desire to see much more aggressive cuts than the
Speaker 1: market is pricing in. Do you worry that cuts subsequent
Speaker 1: cuts could spur another bout of inflation at this point.
Speaker 2: Well, I think the Fed has done a very effective
Speaker 2: job getting inflation down. They were a little late, as
Speaker 2: we know, originally to raise rates, but then moved quickly.
Speaker 3: And what we do is look at our proprietary data.
Speaker 2: We have two hundred and fifty companies and thirteen thousand
Speaker 2: pieces of real estate, and consistently for the last couple
Speaker 2: of years. Others have been talking about sticky inflation. We've
Speaker 2: just been looking at the proprietary data we have and
Speaker 2: it continues to show inflation heading lower. Shelter costs, which
Speaker 2: are the biggest component of CPI, are running well below
Speaker 2: the government's three point eight percent, and so we think
Speaker 2: that'll come down. Energy costs obviously coming down, and when
Speaker 2: we survey our companies about the labor market, they're saying
Speaker 2: it's the easiest to hire that it's been since COVID.
Speaker 2: Wage growth is now down back around three percent. So
Speaker 2: I think the Fed's going to have a lot of
Speaker 2: good data. We could see an uptick in goods inflation
Speaker 2: given what's happening in policy, but in aggregate I think
Speaker 2: inflation continues to drift down. As a result, I think
Speaker 2: the FED has the room to cut rates. So I
Speaker 2: don't think given where inflation is, that's going to reignite
Speaker 2: about of inflation, and so I think that will happen gradually.
Speaker 2: Given the tariffs, given low unemployment, the FED is being patient,
Speaker 2: but I think the facts will give them the room
Speaker 2: to cut rates, and that again should be helpful to
Speaker 2: the economy.
Speaker 3: It should be helpful to markets.
Speaker 1: With all the rhetoric, the push pull between the President
Speaker 1: and the Federal Reserve that we've seen on and again,
Speaker 1: off again threats to even let the FED chair go.
Speaker 1: Do you worry about FED independence from where you're sitting.
Speaker 2: Well, in the last couple of weeks, I think we've
Speaker 2: heard from both the President and the Treasury Secretary that
Speaker 2: they expect the FED chairman to continue to the end
Speaker 2: of his term. I think the FED will continue to
Speaker 2: be independent p and we'll have a choice to make
Speaker 2: a replacement here. And I think this system has worked
Speaker 2: well over time. I think it continue to work well.
Speaker 2: There's a board of governors as.
Speaker 3: Well, so I think the system works.
Speaker 2: And ultimately there have been friction between the administration and
Speaker 2: the Federal Reserve over time. This isn't the first time,
Speaker 2: but I have a lot of confidence, just like I
Speaker 2: do in the entire Madisonian system in the US, and
Speaker 2: ultimately I think the FED will make the right calls
Speaker 2: based on the data.
Speaker 1: John, what do you think of this move that we're
Speaker 1: seeing in terms of more CAPEX spending as well? I
Speaker 1: want to shift gears and talk about data centers because
Speaker 1: you did see Alphabet report overnight coming in with a
Speaker 1: bigger CAPEX plan than what Wall Street was expecting. You
Speaker 1: about a week ago were in Pennsylvania for a large
Speaker 1: summit that the President himself attended, as well as, of
Speaker 1: course Senator David McCormick, who has been pushing more investment
Speaker 1: into the state. At what point does this become an
Speaker 1: issue where investors stop rewarding CAPEC spending. You are already
Speaker 1: seeing a little bit of weakness in Alphabet shares on
Speaker 1: the heels of that announcement. Do you think that investors
Speaker 1: are going to ask for question at some point?
Speaker 2: Well, investors will ultimately look at the returns.
Speaker 3: On the invested capital.
Speaker 2: And the companies, the hyperscalers, the big tech companies are
Speaker 2: spending an enormous amount, but it's because they believe that
Speaker 2: there is a huge prize here at the end, and
Speaker 2: to date their numbers have been really strong.
Speaker 3: They continue to deliver real earnings growth.
Speaker 2: I look through some of the Google summaries and what
Speaker 2: was powerful is how much growth in agents in AI.
Speaker 2: They're seeing uptick and usage as a result of AI.
Speaker 2: And I think as long as these companies continue to
Speaker 2: see their revenue and earnings grow, they're going to continue
Speaker 2: to invest, and so I think this is a critically
Speaker 2: important part of this AI revolution. Yes, we need these
Speaker 2: large language models like a Gemini or an Open AI.
Speaker 2: We need the chips that the videos of the world create.
Speaker 2: But we need this physical infrastructure. We need the data
Speaker 2: centers where we've been the biggest investor in the world.
Speaker 2: We need the energy where we're also been a huge
Speaker 2: investor in generation and transmission and utilities. Both of these
Speaker 2: things in the physical world are hugely important. Ultimately, it's
Speaker 2: going to be about the prize, but I think it's
Speaker 2: pretty substantial. Bringing super intelligence at scale to the world
Speaker 2: is going to lead to a huge shift in productivity,
Speaker 2: and therefore I think the investment makes sense.
Speaker 3: Now.
Speaker 2: There will be, as often there is companies who lose
Speaker 2: out investments that don't work out, But in aggregate, this
Speaker 2: movement towards AI, the movement towards greater efficiency. What's going
Speaker 2: to happen with autonomous vehicles with robots. I still think
Speaker 2: we're in the early stage. And six months ago when
Speaker 2: everyone was talking about deep seek and was the Capex
Speaker 2: boom coming to an end, we were pretty consistent in
Speaker 2: our view then that that wasn't the case. We continue
Speaker 2: to feel that way today.
Speaker 1: So, and I should clarify for Alphabet itself, the initial
Speaker 1: reaction was negative. It later turned around, so clearly investors
Speaker 1: still making up their minds on how to assess out
Speaker 1: what all of the spending means. Last question for you,
Speaker 1: is there something that investors are not seeing about the
Speaker 1: move into data centers and more spending in AI that
Speaker 1: you would point to would be the biggest payoff in
Speaker 1: the next twelve to eighteen months.
Speaker 2: You know, I think that in the physical world, it's
Speaker 2: just the demand. You mentioned this conference we were at at
Speaker 2: Pittsburgh that Dave McCormick hosted. It was a terrific event.
Speaker 2: It was bipartisan in nature with Governor Shapiro there as well.
Speaker 2: Just the amount of capital that's needed I think is
Speaker 2: really really important. I think that investment spend will continue.
Speaker 2: It a pay that is quite significant. And then I
Speaker 2: think on the payoff side, it's what's going to happen
Speaker 2: to make consumer lives better, make companies more efficient, the coding,
Speaker 2: the customer engagement, the content creation.
Speaker 3: I think that is really going to be.
Speaker 2: Transformative to business to potential earnings. And again, as we
Speaker 2: get through this tariff diplomacy. I think the world's going
Speaker 2: to shift to focusing on AI and its impact and
Speaker 2: the investment that needs to happen to make it a reality.
Speaker 3: And I think for investors globally that's exciting.
Speaker 1: John, thank you so very much. I know you have
Speaker 1: a conference call to head off too. We appreciate your time.
Speaker 1: Blackstone shares now up more than three point five percent
Speaker 1: pre market after those results.
Speaker 2: Appreciate it.