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The Blackstone Group LP (BX) Q2 2021 Earnings Call Transcript

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The Blackstone Group LP (NYSE:BX)
Q2 2021 Earnings Call
Jul 22, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Blackstone Second Quarter 2021 Investor Call. During this presentation, your lines will remain on listen-only. I’d like to advise all parties, this conference is being recorded. And now I’d like to hand over to Weston Tucker, Head of Shareholder Relations. Please proceed.

Weston TuckerSenior Managing Director and Head of Shareholder Relations

Great, thanks, Joanna, and good morning and welcome to Blackstone’s second quarter conference call. Joining today are Steve Schwarzman, Chairman and CEO, Jon Gray, President and Chief Operating Officer and Michael Chae, Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-Q report in a few weeks. I’d like to remind everyone that today’s call may include forward-looking statements, which are uncertain and outside of the firm’s control and may differ from actual results materially. We do not undertake any duty to update these statements.

For a discussion of some of the risks that could affect results, please see the Risk Factors section of our 10-K. We’ll also refer to non-GAAP measures and you’ll find reconciliations in the press release on the Shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent. So a quick recap of our results. We reported GAAP net income for the quarter of $2.9 billion, distributable earnings were $1.1 billion or 0.82 per common share and we declared a dividend of $0.70 to be paid to holders of record as of August 2nd.

One additional item of note, we announced a change in Blackstone’s legal name from The Blackstone Group to Blackstone, which I think is how most already refer to us. We anticipate BX shares will trade under the new name on the New York Stock Exchange on August 9th. With that, I’ll turn the call over to Steve [Phonetic].

Stephen A. SchwarzmanChairman, Chief Executive Officer and Co-Founder

Thanks, Weston, and good morning and thank you for joining our call. The firm’s results were truly outstanding in the second quarter. Distributable earnings nearly doubled year-over-year to $1.1 billion. Our fee-related earnings increased 30% to over $700 million. In [Phonetic] the last 12 months, both DE [Phonetic] and FRE reached record levels. Our investment performance represented the best quarter and 12-month period of fund appreciation in our 35.5 year history. In addition, AUM grew 21% year-over-year to another record $684 billion. The second quarter in my view was the most consequential in our history, not just in terms of financial results, but more importantly in terms of setting the foundation for the firm’s long-term growth, [Indecipherable] trajectory.

We’re seeing significant momentum with our expansion into the retail and insurance channels, including Landmark announcement last week for our partnership with AIG comprising at least $92 billion of AUM over time. These channels represent vast new markets for Blackstone. A new paradigm for growth into a firm.

Looking-forward I believe we are positioned for an acceleration of growth when almost every dimension including meaningful expansion of our earnings power. And in particular fee-related earnings taken together, the retail and insurance channels have approximately $110 [Phonetic] trillion of assets globally. This is nearly doubled the size of the institutional channel. The Blackstone exclusively focused historically. And these two channels are dramatically under-penetrated in their allocations to alternatives. We’ve invested significantly over the last 10 years to build out our distribution capabilities in these channels resulting in material costs to us early on without commensurate revenue. Now the wisdom of that approach is becoming apparent as we expand our product lineup, including moving into lower risk-return areas by Core+ real estate and private credit.

In retail, which is in the $80 trillion addressable markets. Our long-term strategy was not just to sell one-off our products, but to develop the highest quality support organization for retail customers and to service in depth the largest private wealth distribution systems in the world. We are establishing the leading platform in our industry with the menu of bespoke products, including our non-traded REIT period and our new BDC BCRED. There is funds from individual investors for Blackstone managed private real estate and credit has been powerful. We are now raising nearly $4 billion per month, that’s $4 billion per month for BREIT and BCRED together. We believe that demand for these two products will continue for years to come. I believe we’ll continue to grow that this powerful distribution channel is ideal for other products we’re developing as well. We currently are launching a new vehicle in Europe, that is similar to BERID, the sales to start in September and we have additional products in the planning and development stage.

In the insurance, we announced the Blackstone will become the exclusive external manager of a significant portion of AIG’s life and retirement portfolio, which would rank as the third-largest US public life insurer. This partnership meaningfully accelerates our growth in the $30 trillion global insurance market.

The Blackstone becoming one of the two largest alternative managers in this space. We will receive $50 billion of AUM later this year, growing to at least $92 billion over time in as I mentioned and we’re excited about the long-term prospects of this relationship. This announcement was the combination of nearly a year’s work between our two companies that reflects a remarkable team effort across virtually every area of Blackstone. [Indecipherable] Jon Gray and Michael Chae and Joe Dowling [Phonetic] who leads our Insurance Solutions area along with a very large number of people at the firm who work tirelessly to bring the partnership to fruition.

Across the firm, Blackstone has never been in a better competitive position than we are today. We’ve established deep and enduring relationships with limited partners around the world including institutional, individual, and insurance clients. Our flagship strategies have materially outperformed relevant benchmarks over time including 15% net returns annually in both corporate, private equity, and opportunistic real estate for three decades leading the comparable [Indecipherable] by approximately 500 to 900 basis points per year. We continue to grow rapidly, principally, organically because we keep inventing new things, and today we offer our clients over 50 different investment strategies. We have more talented people deferring today than ever before operating at the highest level of the excellence and commitment.

Blackstone is the gold standard in the alternative management business with the most powerful brand. Our market capitalization of $27 billion equates to the 70 of the largest public companies in other states. And our forward momentum has never been stronger. As we grow our core mission remains unchanged to generate outstanding long-term performance for all of our investors with the highest integrity and a significant focus on sustainability of ESG. I couldn’t be more proud of our people and what we’ve become. With that, I’ll turn things over to John.

Jonathan GrayPresident and Chief Operating Officer

Thank you, Steve. Good morning to everyone. We have consistently outlined a simple vision for the firm to [Phonetic] deliver strong investment performance and we will attract more capital. This powers to Blackstone innovation machine and allows us to broaden the customers we can serve in the investments we can make. Our second quarter results were a picture-perfect example of this model at work.

Starting with investment performance. All of our flagship strategies again posted outstanding returns, leading to the best quarter for fund appreciation in the firm’s history as Steve mentioned. This performance is reflective of the way we position Investor Capital over the past several years…

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