Blackstone Inc. (NYSE:BX) Morgan Stanley US Financials, Payments & CRE Conference June 14, 2022 12:00 PM ET
Jon Gray – President and COO
Conference Call Participants
Michael Cyprys – Morgan Stanley
All right. I think we’re going to go ahead and get started here. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.
Good afternoon, everyone. I’m Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. Welcome to our keynote session today with Blackstone. And we’re excited to have with us Jon Gray, President and Chief Operating Officer of Blackstone. With about $915 billion of client assets under management, Blackstone is one of the world’s leading investment firms. Jon, thanks for joining us.
Mike, it is great to be here. It has been too long. It’s nice to be back in person.
Indeed, indeed. Well, thank you for coming back here.
Q – Michael Cyprys
Much has changed since you were last here. I think it was 2019, where we were last in this room, one of our last conferences here. We’re facing a much different environment today than we were then, right? We’re facing inflation, slower economic growth, more volatility, recession concerns, a war in Europe, just to name a few, as if that’s not enough, not to mention the global pandemic, of course, right, that’s still ongoing. And against all that, Blackstone continues to surprise with record results, as you have for some time. Can you talk about how Blackstone as a firm is adapting here in this environment? And what are your top priorities as you manage the business?
So when you think back, it has been a challenging period, I think, for everybody. To me, the most interesting thing about our firm is that our priorities and focus are actually remarkably unchanged despite what we’ve endured. So it starts with performance. Our business is built on delivering for our customers. I often find it interesting, a lot of investment organizations are more focused on marketing and distribution. For us, it’s about delivering for the customer, no matter the channel we’re in.
And if you look over long periods of time, we’ve delivered 16% net in private equity, real estate private equity, secondaries. If you look last year, was our best year for fund appreciation. Obviously, that feels like a long time ago. Even in the first quarter of this year, we had relatively strong performance certainly versus public market indices.
So I would say that sort of relentless focus on investment, our investment committee process, which is really unchanged in the 30 years I’ve been at the firm. If anything, it’s gotten more rigorous. So I think that singular focus on investment results, that’s unchanged.
The other priority that I’d say is unchanged is a focus on innovation. We are not a static firm, driven by, certainly, Steve Schwarzman’s desire to continue to push, to innovate, how can we do things bigger, faster, better? We’re just not standing still. So over the last few years, we’ve added life sciences. We’ve added growth. We’ve added infrastructure, GP continuation funds. We moved much more deeply into retail, into insurance. We continue to expand geographically.
So there’s just sort of this constant desire and focus around innovation tied to investment returns. And if we do that, we can continue to grow in a way that continues to, I think, surprise people. I think there is a sense here that there’s some sort of finite TAM in the alternative space. And I think we’re continuing to show that this is a much bigger potential market, but you’ve got to innovate around that.
And then the last priority I’d highlight that I think is remarkably unchanged is the focus on our business model. We are an asset-light brand-heavy investment manager. That’s the way I think about it. We have not — we have virtually no net debt against our $120 billion market cap. We have no insurance liabilities. We pay out 100% of our earnings, have done so, I think, the last four years between dividends and stock buybacks. And yet we’ve grown earnings over that period by something like 35% compounded annually.
So I think sticking with the model starts and ends with delivering for our customers, then innovating how we serve more customers and even innovating on where we deploy capital and then also staying true to the business model. Those pillars have been remarkably unchanged. And I think that’s a big part of the reason why we’ve continued to have success both in good times and bad.
So a lot of areas to dive into there. Maybe going with your latter point around of asset-light, brand-heavy. And let’s talk a little bit about culture and brand, right? I think that’s a topic that doesn’t get enough attention, that is yet so important in this industry. And I think on both accounts, most — many would say Blackstone has done an exceptional job on that. So I guess how do you preserve your unique culture as you hire, as you expand around the globe, as you add more products? And as you grow, how do you manage risk around the brand?
So I think maintaining both culture and brand reputation are extremely important. And I would say, arguably, maintaining that culture is the most important because we don’t have the secret formula of a Coca-Cola in a vault, right? What we have is immensely talented people who work very hard, have been well trained and they’re connected by culture. By the way, to give you a sense of the talent level at Blackstone, one of the things that gives me enormous optimism, I spoke to the summer analysts last week, 250 of them. We had 42,000 applications for those jobs.
So I’m fortunate I did not apply to Blackstone this year than I did it 30 years ago when it was a lot easier. But maintaining that culture, particularly during the COVID period, was top of mind for us. So we did a few things. We created something called Blackstone TV, which is really a glorified Zoom call internally for all our employees around the globe. We did a holiday video, some of you may have seen it. I take a lot of pride in that.
I loved the holiday video.
Thank you, Mike. That makes me so happy. So what we said was, every Monday, we’re going to get all our people around the globe. We’re going to talk about what we’re seeing in the investment environment. We’re going to talk about what we’re seeing in the macro environment, where we’re seeing opportunities, try to transmit some of the learnings we have around the globe.
We’re going to talk about investments we make, dispositions, fundraisings. And then we’re going to do some human things. We’re going to also talk about how we’re a force for good in terms of decarbonization, diversity, backing women entrepreneurs. And we’re also going to do some things to connect us as people. We have a photo contest every week. This week, it was pictures of you with celebrities. The winner had pictures, a woman in our BAM business with Hugh Jackman and Michael Jordan. Great, two different pictures, but nonetheless, she won. But I think it’s really important as you grow a business the way we’re growing that you maintain what’s made you special.
We’ve always been a small, very connected place. And that is super, super important to us. Related to that, we’ve been big believers in return to office. So we started in September of ’20. I actually came back in July, but in September, testing everybody basically twice a week. We’ve spent tens of millions of dollars to do this. We think it’s very hard in an apprenticeship business to build a long-term enduring institution if somebody is in the office never, two days a week, at least for our business. And that there is a creative energy that comes from having people together.
And I think one of the reasons we’ve been successful is different than other firms, we have been together. And we believe in that. Doesn’t mean that people have personal issues. You can’t use this technology, which is powerful, but we’ve been big believers, particularly for investment professionals, in being together. And so we did, by the way, in the last few weeks, we did a culture survey, which we reported out to the organization this week on Blackstone TV.
We’re having action plans for all the groups. I’m actually flying to Europe tonight. We get to do a super return conference in Germany tomorrow, like taking the show on the road here. But then I’m going to London for two days, doing an employee town hall, going to an event with our Real Estate team in Europe, meeting with the business heads in all our different groups. And then I’ll be in Asia multiple times over the next few months. And all of this is an effort to keep this thing connected.
And I think too often, people have thought about these businesses as a series of funds or separate businesses and lots of acquisitions and roll-ups and every business can be built in different ways. But we’re trying to build something that is truly enduring, that is primarily organic in the way it’s grown and that is connected by a really powerful and strong culture. And what’s running up against that, of course, is very fast growth. And so we’ve got to be super conscious and intentional about getting that right.
Great. Why don’t we shift gears and talk a little bit about the macro, okay? You have hundreds of portfolio companies, thousands of real estate properties all around the world. Through that lens, what are you seeing in terms of how the global economy is managing through all the inflation, the growth risks that I mentioned at the start? And what’s your take on all of that?
Well, I’ll back up and start by saying we’re clearly moving out of one era that has existed for 40 years, which has been an era of declining inflation and declining rates, which bottomed sometime in the summer of 2020. What happened here? Obviously, the pandemic had a big role, but certainly, the monetary and fiscal policy here in the United States and around the world has added enormous stimulus.
And what that is leading to is very strong levels of demand for lots of goods and services and a significant amount of excess liquidity. And what we’re seeing on the supply side is challenges still from COVID. You see it in China today. Challenges from the war certainly in Europe, but also big structural shortages in areas like energy as we try to make this transition, in housing where we’ve underinvested since the financial crisis, in commodities where we’ve underinvested.
And in labor markets, where we don’t have much growth in working aged population in most of the developed markets. So when you have a huge surge of liquidity and demand, meaning shortages of big portions of the global economy, you get sharp upward movements in price. What we see in our portfolio is exactly that. We still see significant supply chain challenges, but we see the price of materials, of shipping, of energy costs, and labor. And I would say we do a survey of all our portfolio companies.
We ask them what’s your biggest issue for multiple quarters now, probably for a year-plus, it’s been the availability and cost of labor. And that, right now, you see it in the data, where even in the U.S. as we talk a lot about recession concerns, which I think is something obviously that is a factor over time, it’s the weight of inflation and higher rates that could be a potential issue.
In the near-term right now, what we have is twice the number of job openings as the number of people looking for jobs. So what we’re seeing on the ground is pretty significant expense pressures, but also generally pretty good revenue growth. The strongest revenue growth would be in areas like travel, leisure, entertainment, that is remarkably strong not just in the U.S. but even Europe. People are getting back out there.
Obviously, the energy complex is strong. And so it’s a story of strong revenue growth, but high rates of inflationary pressures, which is what I think you’re seeing broadly in the S&P 500. And then I would say, specifically, in real estate, we’re still seeing a lot of strength in logistics and rental housing, which have had very good fundamentals in the last couple of years.
Great. So with that sort of backdrop, you have $140 billion of dry powder to put the work. So how do you think about putting that capital to work? Where are you seeing some of the most interesting opportunities?
So I would say what happens in a period like this, always when there’s a dislocation, public markets move. And so you start to look in those public markets where there are sectors where prices have fallen further than they should, be it in equity and credit markets. There’s a lot of dislocation like we’ve seen in the last couple of trading days. Over time, what you’ll start to see is prices more broadly get impacted by what’s happening.
So that will take — sometimes, there’s a little bit of a period where things reset. I would say in terms of interesting, maybe also least interesting, I think least interesting is anything that looks and feels like a bond. So that 99-year Austrian 2% bond, it’s probably not, even today, the greatest thing in the world to own if you think inflation is likely to persist more than economists do.
If you own assets that a 20-year leased office building that has flat rents or 1% bumps, that’s probably not a great investment in this kind of environment. I think cash, which a lot of investors have certainly outperformed this year. But in the fullness of time in an inflationary environment, you lose real purchasing power.
And then corporately, what you want to be cautious about is businesses with a lot of exposure to those input costs I was talking about without pricing power on the other side. So if you look at a food manufacturer, grain costs, shipping costs, labor costs up and you can’t charge $20 for a box of cereal.
On the positive side, where would you look? Floating rate credit, particularly in the private markets, looks pretty interesting because every time the Fed or other central banks, depending on wherever your base rate is set, raise rates, you get higher returns. Hard assets with short-duration income, transportation infrastructure, I mentioned logistics, rental housing. Those are markets where you don’t have a lot of exposure to input costs. You have big margins and you have strong fundamentals, and that enables you to drive higher revenues.
On the corporate side, what you’re looking for are businesses in what I think of as good neighborhoods. Obviously, we’ve seen big, big declines in technology, but the migration online of our lives continues. The transition to green energy is going to happen. The revolution in life sciences will continue. Travel, I think, still has a ways to run. I think housing, not for-sale housing but the shortage rental housing is good and I think alternatives. In the near-term, obviously, realizations will be impacted, but the mega trend and move to alternatives, we believe is still very much intact. And so things like secondaries, leveraged loans, and after a reset, even stakes and managers, I think, become more interesting.
So if you just step back, only two things make asset prices go up: rising cash flows, rising multiples. Multiples are actually going to be under pressure. So you’ve got to own businesses where cash flows will grow, and that’s the lens we’re looking at all sorts of all our investments across the firm.
Great. So you mentioned at the start kind of this period here of pricing resetting. So I guess how do you see that impacting the pace of deployment here in the second quarter compared to, call it, $23 billion or so that you put to work in the first quarter?
Well, I don’t want to get into the specific quarterly comments because my general counsel wouldn’t be happy with that. But what I would say is near term in terms of deployments, there are still investments you committed to in the fourth quarter and first quarter that will close. I think — and interestingly, I’ll just comment on that, we committed to, in the last six months, five deals between $8 billion of enterprise value and $50 billion of enterprise value. And what I think you’d find interesting is they’re all hard asset businesses. We bought them in private equity, infrastructure and real estate.
We bought two last-mile logistics businesses, one in Europe, one in the United States. We bought the largest student housing business in the U.S., again, rent set every year. We put forth an offer on the biggest transportation infrastructure company in Europe. And we committed to buy the biggest casino company in Australia.
So if you want insights into how Blackstone is thinking about the world, I think that gives you a pretty good insight. Now what do I think happens as we look out over the year? As I said, I think it will slow. I think more of the opportunities will be in liquid markets. But after a price reset, I think opportunities will start to emerge, and we’ve been through this in the past. The nice thing about our business is we’re not a forced buyer, we’re not a forced seller.
And I think one of the reasons why people continue to be surprised by alternative firms is the durability of the model, particularly when it’s tested in environments like this. So I think the good news is we’ve got a very large amount of dry powder. We’re raising more money. We should be well positioned in a more dislocated market, but it may take a little bit of patience to wait for the right pitches.
Fair. Maybe just talk a little bit about the existing portfolio. So first quarter, we saw some very strong portfolio marks across the board in what was a tough backdrop for public markets. So can you talk about how your portfolio companies are navigating in this environment? How Blackstone is helping the portfolio companies? And what are some of the revenue and EBITDA growth trends that you’re seeing? You did mention some margins before.
Yes. What I would say across the portfolio is what we’re seeing is what I talked about earlier, strong revenue growth and — but we’re also seeing expenses growing. This phenomenon existed in Q1. I think what’s really important to keep in mind is that we’ve been focused on multiple compression and particularly on inflation, I think, longer than most. You could go back to — I talked about a surge in inflation back in January of ’21. On our first quarter earnings call back in ’21, we said the major risk is rising inflation.
And so we’ve been really focused on deployment. So when you look at our credit portfolio, our institutional and retail credit portfolio, it’s virtually all floating rate, so benefiting from those rising rates, as I talked about earlier. When you look at our real estate portfolio, 70% of it sits in logistics and rental housing. We also have a bunch in life science office buildings, a very strong sector, and then the hotel market where we’re seeing strong recovery. I think aggregately, those four sectors are 80-plus percent of what we own. In our private equity portfolio, I mentioned a lot of exposure to travel.
We still have legacy energy and green energy sectors that are doing well. And even in the technology and growth space, we have much more of an orientation towards companies with EBITDA, and we were pricing them off of multiples that we thought within a couple of years would be reasonable and did much less of what I’ll call more speculative tech. So I overall feel very good about our portfolio.
I think we will continue to outperform over time. In terms of helping our companies, obviously, we’re fully engaged with them. We have some really amazing things around procurement and purchasing because they’re all looking at their cost structures. We’re also helping them with technology on the labor front. We’re really trying to think about how we can help them.
The pressures today are mostly on the cost side of their business for most of these businesses. The other good news is we don’t own a lot of industrial companies, which I think are more vulnerable in this kind of environment. So all that being said, nobody is immune, right? We are in an environment where it’s going to be more challenging to operate. But I would say, overall, the way we’ve thought about things, the neighborhoods we’ve invested in, I think, positions us better.
And with the capital markets backdrop and activity a bit more subdued this year, many IPOs are on hold. So how are you thinking about the outlook for monetizations here?
So a bit like deployment, there are a number of things we signed up earlier which will close, so I think the near-term outlook is actually pretty good. I think as you look out over time, when you have this kind of dislocation in the capital markets, you have to presume that monetizations will be more muted. And again, the good news for us is we’re not a forced seller. We’ve been through plenty of other downturns in the past.
And if you looked at our funds, and they’re all publicly disclosed, particularly in private equity and real estate private equity, even the funds that got caught in a tougher economic market climate, all of them produced ultimately basically a 2.2 gross multiple of invested capital. It just took longer in the tougher cycles. So again, we like the businesses we’ve invested in. We like our portfolios. We can afford to be patient.
And the other thing I’d say which is different than previous downturns is because we have these perpetual structures, a number of our business units don’t need sales to generate incentive fees. And that’s different when you look at things like core-plus real estate and infrastructure in some of our direct lending platforms. That’s definitely a difference. I’ll give you an example. We own a life science, core-plus real estate business in a perpetual vehicle. It monetizes, crystallizes every three years.
So that fund, when it ultimately arrives, will have multiple years of gain built up into it even if, let’s say, the next year is more challenged. So that’s a change to our business. That’s why I think there’s a little more durability. But yes, short answer, as you look out further, given this environment, you have to expect a more muted environment.
You raised an interesting point just around the permanent capital vehicles. I don’t think it’s always appreciated that there doesn’t need to be an asset sale to actually clip a performance fee, right? To your point, it’s around performance and time. I guess how do you think about the sustainability of performance fees in those vehicles through what could be a more challenging environment, understanding the thing that it’s also driven by performance?
Yes. So I think the key thing is where those performance fees sit, the kind of assets they’re around. And so the biggest components would — the biggest by far would be in real estate, and the big exposures would be in logistics and rental housing. I thought it was interesting yesterday that the CEO of Prologis, when he talked about buying Duke despite the sharp trade-off in the stock, basically said that the rental growth and fundamentals in this business, something that in fact have never been stronger.
And so what we’re seeing on the ground in logistics are incredibly strong. We’ve talked about the shortage in housing. And if anything, we’re going to see a slowdown in for-sale housing, which unfortunately will create more of a shortage of housing in this country. So when you think about owning, if you think about our BREIT, our nontraded REIT, the fact that, that vehicle itself is 80% rental housing and logistics, in the first quarter, it had 16% same-store NOI or cash flow growth. That’s very positive for that vehicle. Now that being said, we’re going to see pressure on cap rates. Cap rates are likely to go higher in a higher rate environment. But it’s just so important to own businesses where cash flows can grow to help offset that.
So what I think it leads to, Mike, there is growth in value, but much more muted again versus what we’ve seen in the past because you’re not just getting the benefit of fundamentals. You’re getting some headwinds from lower multiples. I’d say similar dynamic in our institutional infrastructure fund. There, what you’re seeing is really strong fundamentals in transportation infrastructure, digital infrastructure, energy infrastructure. We’re just seeing it across the board. Maybe there will be some multiple pressure. But again, we’re going to see really good growth. And then I would say in direct lending, our nontraded BDC, what you see there is rates are going to be going higher and that’s going to be beneficial.
So we have a lot more dollars at work than we did a year ago. Obviously, it’s going to be a more challenging environment. But I think the good news is where the perpetual assets have been deployed. And that’s one of the things that gives us and our investors a lot of confidence. But you have to be mindful. We are certainly in a more challenging environment than we were before.
Great. You mentioned real estate. So why don’t we dive in, talk a little bit about on the real estate side? The pandemic has really accelerated the shift to e-commerce. Two years of remote or hybrid work for many has raised questions around the future of office. And now with inflation and rising rates, some have concerns around higher cost of financing, what that can mean for cap rates and for valuation. So do you share these concerns? What risks and concerns do you see as you look across the real estate landscape?
Well, I think the real estate landscape is going to be much more bifurcated than historically. There are technological and sort of lifestyle changes that are impacting certain sectors. This migration online has been a real headwind to retail, and I think that will continue maybe at a slower pace. There was probably an accelerant based on COVID, some of that will rewind. But long term, I think e-commerce grows and that’s a headwind in the retail sector.
I think in the office sector, older office buildings that consume a lot of capital and don’t entice employees to come back, I think they face some serious headwinds. I think — and in sectors, again, where you don’t have a lot of growth, if cap rates are moving up, there’s no place to hide. I would say more rent-regulated housing, similar dynamic where you can’t grow your income much and the cap rates move up, again, that’s very challenging.
On the flip side, shorter-duration assets with a lot of pricing power do well, and those two sectors I’ve highlighted. Storage is another good sector. I think the hotel business is going to have a robust cyclical recovery here. It’s got a little more exposure to input costs with labor. But I think the revenue side will be — will exceed people’s expectations. So to me, real estate is interesting to own in an inflationary environment because it’s much more expensive to build things. So — and it’s much more expensive to finance the building of things.
So you will see less construction, so the supply-demand fundamentals are better. It’s also interesting, again, because the buildings are built, you don’t have a lot of cost. You own a warehouse, the costs are pretty low as a percentage of your revenues. But cap rates move up in a rising rate environment. And so again, you need to be in shorter-duration assets that have pricing power. If you’re not, I think there are segments of the real estate world that are going to have a challenging time.
Why don’t we shift and talk about private equity. One of your newer businesses is growth equity. Can you talk about how that business is navigating the environment here? What risks and opportunities do you see, just given the decline in public market growth equity stocks?
So what I’d say in growth equity is the good news for us is we came from a place as cash flow-oriented private equity investors. So as we moved into the space, we’ve had much more of an orientation to companies that make money, break even or make money as opposed to serially need to fund raise. And I think that’s going to be really important in this new environment because I think you are going to see a lot of down rounds.
And if you need to raise capital and you don’t have a clear path to profitability, that’s going to be much more challenging. The other thing I’d say about our growth business is we didn’t just do enterprise technology. We had a much wider lens. We did a number of very profitable consumer tech businesses and then just some regular weight consumer businesses like Super Group, which is the SPF skincare business.
So I think we have differentiated ourselves. I also think our platform enabled us to partner with better companies, and we also do it in bigger size, which allowed us to deal with bigger companies closer to profitability in profitability, which makes a big difference. Again, nobody is immune in this kind of environment to what’s happening but I really like our growth franchise. I think we will continue to grow that in an environment where I think it will be hard to raise capital. I think we’ll continue to be able to raise capital because of the way we’ve positioned the business.
And so when we look at your growth equity fund, those are breakeven or profitable for the most part?
For the most part yes, they are. And that, I think, is the important distinction. It doesn’t mean that things don’t get impacted by valuation. But the big decline, the big pain is going to be, you have companies that need to raise large amounts of money on a continual basis and investors are going to demand a lot more. And that’s going to be where the greatest weakness will be.
Okay. Maybe just taking a step back, we’ve seen a lot of flows into the private market space over the past couple of decades, if you will. So I guess, what’s the risk that we wake up in five or 10 years and the growth has slowed dramatically? What would have happened?
This has been the question. Our firm has been investing in private markets since 1987. I’ve been there since 1992, and there’s always this view that private equity or alternatives are just on the verge of like they’re one cycle away from this being over. And I continue to be amazed by that sort of supposition because what we’ve seen is the exact opposite. In downturns, private equity firms outperform. Our investment in Hilton greatly outperformed what you would have done if you had invested in a public lodging stock. And I could go through that across a bunch of different asset classes and the data from the various consultants and from the big institutions proves that out. And that’s why they’ve been on a steady migration from low single digits 25 years ago to low 30s today.
And in the case of some endowments, where many of us went to school, it’s 50-plus percent. I don’t see them backing away from this. If anything, what we see them is looking at their fixed income portfolios and saying, gosh, I’d love more exposure to private credit market floating rate. That looks pretty interesting to me. And I would like to invest in opportunistic credit in this kind of environment. And as it comes to growth in technology, I know that in ’02, ’03, ’04 in 2011, ’12 and ’13, if I invested in tech and growth funds, that was a good time.
So we’re not seeing institutions pulling back. And then we’ve got these other two areas, retail, where the $80 trillion of retail wealth of people who have more than $1 million of investable assets allocated about 1% to private markets. We’re in an environment now where I think 60-40 is going to get challenged. You think about our kinds of products, what we’re offering. I think, obviously, in the near term, again, you could have sales be more muted because of the volatility. So right, you get a reduced pace.
But over time, these kind of products and the attractiveness of private markets, I think, go up. So I don’t think this comes to some sort of screeching halt. If anything, in certain subsectors, we might see an acceleration once there’s sort of a settling out of things. And then in the insurance space, I think again, we’re in the early stage of a mega trend, which is insurance companies have traditionally bought liquid stocks and bonds.
And in private markets, they originated commercial mortgages to get excess return. And all that’s happening is by partnering with alternative firms, they’re getting to do that in the corporate space, in the infrastructure space, in the asset-backed space. And they’re getting to keep the incremental return by being part of the origination itself. And again, I don’t see that as a moment-in-time phenomena.
So when I look out at the landscape, I still think we’re in pretty early days of what private markets are going to be. And just to put numbers on it, I think private markets today are $10 trillion. I think the global universe of stocks and bonds, maybe it’s gone down in the last few weeks, something like $250 trillion. If you throw in infrastructure and private real estate, the numbers get even larger. So the idea that this industry, which is equal to the size of six tech companies on the West Coast is somehow added to APAC and it’s going to be in decline or plateauing, we just don’t subscribe to that, and that’s certainly not what we get a sense talking to our customers.
So why don’t we talk about fundraising? So you’re in the market with a number of funds. You’re looking to raise $150 billion from your drawdown funds and then there’s other strategies on top of that, and that $150 billion through the middle of 2023. You have perpetual strategies on top of that, new channels that you’ve discussed there. So I guess how is fundraising going? And sort of what’s the outlook from here on the fundraising side?
Our fundraising at Blackstone has been remarkably strong. You referenced — and I would say it’s — a big part of it is we have four large verticals, you hit on them. On the drawdown business, which is mostly an institutional, virtually all institutional business, we said we’d raise $150 billion to our latest series, which I think was 25% larger than the previous. And we said we’d do that through this year and next. And I would say today, we continue to expect that will be the outcome.
And by the way, I would just point out and it applies to all of this, I’m not sure our experience is necessarily look through to every other firm. I think the breadth of our platform that we’re in all these different asset classes, secondaries, real estate, infrastructure, credit, private equity, tactical opportunities, I think the fact that we’ve been doing this for 35 years. We’re on three funds in the market with who have Roman numerals either IX or X. So you have customers who’ve been with you a long time. The fact that obviously, the performance which we talked about and we raised money not just in one geography, all over North America, South America, Europe, Asia, the Middle East and through multiple channels.
So I think that’s why the results for us are probably a bit differentiated. So we started with institutional drawdown. The next stop that we don’t talk a lot about is institutional perpetual. We have almost $100 billion, mostly core-plus real estate and infrastructure. We started our infrastructure business 3-ish years ago. It’s already $30 billion today. I feel good about that sector because it’s a hard asset space. Clients are looking for more hard assets, good momentum there. Retail, which we talked about earlier, early on that journey. This year, the fundraising has been strong. But as I said, you can’t expect to maintain that same pace when you hit the kind of turbulence you’re seeing now. What matters though is in the fullness of time, can you continue to perform?
And as we’ve seen in the past, in 2020 and elsewhere, I think given the nature of the products we’ve created, we can. And in fact, when I go to Europe, one of the things I’m doing is talking about our real estate European product called BPIF. It’s still $1 billion to $2 billion, small in size. I think it has enormous potential for the same reasons. I think individual investors in Europe will want exposure to hard assets with some yield, some inflation protection. And so we feel really positive about the potential for retail.
And as I said, it’s been a strong year for us. In the insurance space, we have three existing large clients. We get some organic flows from that. But then more episodically, we can grow that channel as we find partners who are looking to allocate their private portion of their portfolio. We do it differently than our competitors. We’re not using capital or if we use capital to buy a minority stake for alignment purposes.
But I think, again, that’s a sector where the desire for our capabilities, which are pretty broad, is significant. I think we’ll find more clients over time and we’ll continue to grow that. So despite all the headwinds in fundraising one would expect, what we produced this year, as I said, has been remarkably strong.
We have a few minutes left. I have a concluding question, but before I get to that, I do want to ask a little bit more on the retail side, just in terms of the — any constraints on growth. You mentioned, I think, why the product is resonating. It sounds like it’s the income, it’s the performance. Maybe you could touch upon any constraints on growth, any others you’d mentioned in terms of why they’re resonating. And just how do you think about the broader product outlook on the retail side.
What I think is that the individual investor historically didn’t have access to private assets. It was done — they used to charge 10, 12 points in a lot of these offerings. They charged acquisition, disposition fees. It was often run by people who didn’t have experience. In the BDCs, it was 2.5, three points on the gross, 7, 8 points on the net.
And the focus, what ended up happening was you bought high-yielding real estate assets of low quality. When the lease burned off, you face big issues. Or in the BDCs, you often bought second liens, riskier credits because you had to make up for that load. So our insight, when we started BREIT now 5.5 years ago is, what if we charge the customer basically what we charge institutional clients? And we had the same quality investment that built the largest real estate investment business in the world and one of the largest private credit businesses. And that was the basic idea.
And that’s how we were able to convince organizations like Morgan Stanley to give up their prohibition because we said we’re going to do exactly for individual investors what we do for institutions. We want to give them best-in-class returns. Now we’ll also change the structures. We’ll do it in the 1099 instead of a K-1. We’ll provide some limited liquidity features. We’ll have more yield. But if we do all that, we think we can deliver really strong performance and that’s exactly what’s happened. So that gives me confidence. And what’s interesting about this market is there’s still a very small percentage of financial advisers and underlying clients allocating to the space.
And the other thing I’d say about this market, in the institutional market, there can be 2,000 private managers, whatever the number is in the United States. You can’t have that in the retail space because the distributors are going to be very focused on a relatively small number of products that they have high confidence in. It will be more than it is today, but it’s hard. We made a huge investment. We have — we’ll soon have 300 people on the ground doing this. It’s definitely more challenging. You have to be able to deploy the capital but you also need a brand.
And if there’s one thing I’d want to say about our firm that I think is constantly underestimated is the power of this brand to attract human beings to work for us, to sell and partner with us on their companies and to give us capital to manage. And that’s why we don’t use capital to grow our business because it’s the power of that brand.
Great. Now we covered a lot of ground in the past nearly 45 minutes. A lot of the secular tailwinds that you highlighted, many of which are still early days and even accelerating, early innings there. So as — can you talk about your vision for Blackstone as you eye crossing $1 trillion this year in terms of AUM? Where do you see the firm going over the next three to five years? And why is it now a good time to buy Blackstone stock?
So I love that question. I’d say a couple of things. I think the vision, going back to your first question, is to be the same, right, to deliver for our customers. That’s the most important thing. Whoever entrusts us with capital, I want to make sure we deliver best-in-class performance. To me, the performance matters. I want to have a vibrant culture where we attract the best people in the world to come and apply their craft.
I want to continue to be a force for good. I want to make companies grow faster, reinvest in communities, do great things about decarbonization and diversity. And I want to be something people think of in a very positive light. And I want to — we want to, certainly Steve’s vision, we want to continue to grow. There are more customers out there. There are more asset classes. There are more channels. We can do more leveraging this amazing platform that’s been built.
So to me, we’ll continue to be, I think, in the private markets, that’s what we’re going to be. We’re going to continue to operate, as I said, asset-light, brand-heavy. We want to continue to pay out to shareholders our earnings because we don’t really have use of capital. And when I look at our stock, I say — I don’t know, this is a company that’s grown earnings and AUMs compounded 20-plus the last five years. I think earnings the last three years have been 36% annually compounded, even faster in the last 12 months. I see this really powerful business model with healthy margins. I see a very large potential TAM in managing capital and still early penetration.
I see us as the global leader in this space. And yet we trade today after the big selloff around the market multiple. We have a dividend yield that’s double the market. I think on a trailing basis, maybe even higher. And the insiders at our firm own almost 50% of the company. So there’s heavy alignment. So do I believe even in a more challenging rising rate, rising inflation environment, this business will continue to deliver? I absolutely do. And therefore, I think those people who choose to be shareholders with us will benefit from that as well.
Great. I’m afraid we’ll have to leave it there. Jon, thank you so much.
Mike, thank you so much. Thank you all.