Blackstone 1Q17 Earnings Call Notes

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Stephen Schwarzman

There’s an information advantage that comes with size

“There’s also an information advantage that comes with size, providing a critical underpinning to our performance. We’re basically in the intellectual capital production business. Assuming that our people are equally as smart as the best qualified investors in the world but have a more informed view, then logically, we should be able to produce better results. As Blackstone grows larger, our access to information increases and our returns benefit which may seem counter intuitive, but as you can see, it happens to be true. This ability to generate and evaluate information is a key structural advantage at Blackstone.”

Political events have become more important

“And sustaining this advantage has become mandatory to have use on geopolitical events and decisions by governments which are impacting the business environment to a greater degree than ever before. Senior business leaders globally are spending much more time today on the impact of elections, regulation, legislation and other changes occurring in countries around the world which can have profound implications. And you also consider rapid technological advances. It’s no longer business as usual virtually anywhere about anything. We believe sustaining long term success requires us to have an educated view on global issues with enormous alertness in changing conditions.”

Hamilton James

The only way for money to earn higher returns is in alternatives

“And in order to connect those dots, that money has to earn at higher compounding rates than the typical 401(k) earns of 2% to 4% after fees. The only answer to that, particularly with markets where they are, is to move out of purely liquid markets into alternatives. So I think eventually, both parties are going to realize that they’re going to decimate their elderly population financially if they don’t allow this to happen. And it doesn’t — it’s not a fix that takes overnight, so we have to get ahead of it. So I think the need — I think that need is becoming more and more clear and the answer is becoming more and more clear to both parties. I think the changes in the Department of Labor and whatnot open up opportunities for us, we think, but we’ve got a long way to go before its actioned.”

Retail has headwinds but there are pockets of winners

“we think retail, in general, has headwinds. So it’s not like we’re piling into that. And I will say though, within real estate, we’ve been a big beneficiary because of the last mile logistics that e-commerce companies require and that’s been global. It’s been nice days of Europe, China, Japan, et cetera. So that has been a key thrust for us there and the whole logic core business which the world is aware of, has benefited from that. With respect to other retail, there are going to be winners and losers within the retail sectors. So there’s still — people still go to grocery stores and they still have — need local markets. And so we’ve again been a beneficiary in real estate of grocery — in the grocery-anchored mall area or local malls but would stay away, frankly, from the regional malls. So we’re trying to be smart about that. When we look at retailing though, a lot of the companies were looking at it and say, on the corporate side are hybrid bricks and mortar and e-commerce companies. And very often, those things work very well together and we’re seeing some interesting opportunities.”

Global business is continuing to get better

“The economy is continuing to get better and it just — and our companies, many of them are big enough to be global. Europe is definitely on the rebound. And I’d say this, China has come through sort of the wobbles that people worried about very well. Modi has got a new mandate and India is feeling good. And so it’s a global business and it’s global — Brazil, it feels like it’s kind of certainly in a business attitude down there, they found bottom and they’re more optimistic with the change of the presidency. So in general, global business, it’s continuing to get better and that’s what you’re seeing.”

Foreign regulators view us as over-regulated

“No that’s — it’s an interesting question. I’ve had meetings in the last 2 days with sort of 30 senior regulators from around world. And I was quite surprised at those meetings. And they came in to see me for a different reason, it wasn’t tough actually, I guess, it was 3 of them, from Blackstone [indiscernible] more to talk about the system. And they’re always saying that they think U.S. is tight. That we’ve overregulated, that our standards are beyond the Basel requirements and that’s taken a — sort of a — that had an impact of slowing down growth in the United States and it’s starting to affect their countries as well because some of the kind of regulatory enforcement and Justice Department impact has scared people around the world. And so I was really surprised and what they were saying is, we’d like you people to change so we could run our world as like a sort of in an easier, more normalized kind of way.”

Michael Chae

Overview of capital markets

“Okay, well, on the — let’s start with the recaps first. On the recaps, the credit market is benign, it’s for sure, but it’s been benign for quite a while. And I don’t see it accelerating, I think it continued to be part of the mix. The — maybe you’re not seeing as much as you might expect given the credit markets though because equity markets are also very, very receptive to IPOs and blocks, the secondaries. And we have, getting to your first part of your question, a good strategic market. So for the exit site, it’s all 3 channels of exit are open for business and are welcoming to harvesting value. And yes, so with strategic partners, sure, there’s plenty of them out there. I think one of the things that’s happened with the election of President Trump is there’s a little bit more of a forward leaning attitude on the part of corporate buyers. And I would say, that’s pretty much across the board. And it’s not just U.S., its international buyers as well. And we got a question earlier on China and obviously, what China is doing with the currency will affect that. But so far, we’re still seeing China corporates buying, successfully completing strategic acquisitions.”