Blackstone 2Q17 Earnings Call Notes

Steve Schwarzman – Chairman and Chief Executive Officer

Tony James

A lot of capital sloshing around the world

Okay. Well, it’s Tony. There is – it’s obviously been a good fundraising cycle and particularly for private equity, there is a lot of capital that’s being raised and has been raised. And in general, there is just a whole lot capital sloshing around the world, looking for returns. And I think we are more impacted frankly by the aggregate in the public markets than the amount of private equity capital. Our business is to find needles in haystacks. That’s what we do. We are not really chasing public market values and we are not really that impacted by them. And our business is once we find the needle, it would have to be an asset into which we can intervene and change the course of EBITDA. So we create our own values so to speak as opposed to being slaves to the public market valuations.

Blackstone 1Q17 Earnings Call Notes

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.”

Blackstone 4Q16 Earnings Call Notes

Stephen Allen Schwarzman

Really extraordinary that the S&P finished last year up

“The fact that the S&P ended up 9.5% on the year with positive momentum and surging investment confidence, in fact the highest confidence level in 15 years, is really extraordinary. Needless to say, many active managers didn’t participate in this 9.5% gain.”

Clearly there’s anxiety

“I’ve spent a great deal of time recently traveling and meeting with different heads of state, business and political leaders from around the world, who are looking for insights into the new administration. It’s clear there is a good deal of anxiety both inside and outside of the country around potential changes in U.S. policy.”

But there are policies designed to create GDP growth

“Major changes that are underway are designed to create significantly higher GDP growth in the United States, targeting a rate of growth as high as double the average of the past eight years. Higher growth should drive higher employment and wages as well as greater labor force participation. And we believe this will also extend the business cycle.”

Chairing a committee for the administration

“Well, actually, my wife has asked me the same question because you just pack more stuff in and you sleep less. And it’s very interesting type of position to have because you touch a lot of people in the administration. And the whole administration is in a startup phase. And, as you know, most of the cabinet heads aren’t even confirmed yet. So there is a startup element of it in terms of my role which is I’m not a member in the administration. I am chairing a committee. I’m like a full-time person of Blackstone that’s getting sort of sucked into a lot of interesting things that are happening, because, as I said in my remarks, a lot of people around the world are sort of observing all these changes that seem to come out every day and are looking for some type of interpretation of what that means or might mean. And so that’s created, I think, a short-term bubble for me to do a lot of stuff. But I don’t think that that will continue at the same level for a sustained period of time once they stand up all the cabinet heads. We will have regular meetings with the President and supposed to be every month. And so that’s a very interesting thing in a rapidly changing environment. But my full-time job is at Blackstone and I’m shoehorning all this other stuff in.”

The one thing that Steve Schwarzman wants from the administration is to improve retail access to alts

“One thing I’d say, this is Steve, at the risk of prolonging this answer is that in life you have to have a dream. And one of the dreams is our desire and the market’s need to have more access at retail to alternative asset products. As I said in my prepared remarks, if you look at those returns, those are really stunning. And at the moment, a lot of people are not allowed to put those into retirement vehicles and other types. One of the interesting issues when you have a new government is whether they want to continue that type of prohibition or not because what it’s doing is denying people sort of a better retirement. And if there is a change in that area, that becomes a huge opportunity for the firm. We already have lots of white space that Joan was talking about. So we’re not defective in terms of things to do every day to increase sort of penetration, but there is ability for something to get changed that could be really, really impactful.”

You’ll get tax reform out of the house, but Senate is not as up to date

” this would be the biggest tax reform in certainly 75 years, maybe 100 years. So it all fits together and it’s meant to fit together, not to just have take one piece out and say, well, this is unfavorable. You have to look at it all which is the way the people are putting the law together, are looking at it. On the other hand, you have to get a law passed and this is not the easiest lift with all these new concepts. And my guess is that you’ll get it out of the House because it’s got enormous momentum in the house, but then it has to go through the Senate, which is not nearly as up-to-date on what’s going to be coming at them and then you have to go to confidence and make it work.”

Blackstone 3Q16 Earnings Call Notes

The Blackstone Group LP (BX) Q3 2016 Results
Stephen A. Schwarzman

Real estate remains an attractive asset class

“Real Estate remains an attractive asset class globally, although there is less distress today. We expect fundamentals to remain solid for the foreseeable future. In most markets, supply remains constrained. Demand for high-quality real estate is strong. Debt levels are not excessive and bank competition is diminished.”

Continue to invest capital at discounts to replacement cost

“We’ve been expecting interest rates to increase for some time and have baked that into our underwriting assumptions for new deals. Historically, when rates have increased, it’s generally been reflective of greater economic activity which in that scenario is good for our business. Against this backdrop, we continue to invest large-scale capital at discounts to physical replacement cost.”

Michael S. Chae – The Blackstone Group LP

There are some big winners in the hedge fund space

I guess, I’ll take that one. There’s a lot of activity in hedge funds and – but it’s not so much like the whole industry is under duress despite what you might read is, there are some big winners. There’re some sectors losing but there’re some big winners too. And what you’re really seeing is you’re seeing assets flowing from the sectors that have struggled to or distinguish themselves on returns to the sectors that are actually doing quite well. And I think your pricing power is kind of a function of where you are in that equation.”

Hamilton James

Drop in base rates was never fully passed on through cap rates

As rates rise, obviously, cap rates will sneak up but the drop in rates was not fully passed through on cap rates. In other words, a spread over base rates came up. So as rates rise, some of that will be absorbed we think by a return to more normal spreads. And we are not really in the business of betting on cap rates staying where they are. Usually, we buy something and we expect on exit cap rates to be higher anyway. That’s what we underwrite to. So that’s our premise and we think that as long as the environment stays healthy, it doesn’t have to be hot by any means. It just has to stay healthy the way it is today then rising rates are what we are expecting and we’re going to get our return

Working on applications of tech to drive new products

“we’re working on some interesting applications of technology to drive new products, and I think those would be some interesting products there which will probably be lower fee products per dollar of AUM, but quite profitable because of the cost structures, and could be very, very large in terms of AUM.”

Blackstone 2Q16 Earnings Call Notes

The Blackstone Group’s (BX) CEO Steve Schwarzman on Q2 2016

Macro background characterized by uncertainty

“We are executing against a macro background characterized by uncertainty, low and slowing growth and an astonishing low interest rates around the world. The 10-year U.S. Treasury recently hit its lowest point ever and one-third of developed nation’s sovereign debt is trading at negative yields, and I think two-thirds trading below 1%.”

We’ve been going through an extraordinarily strange period

“We’ve been going through an extraordinarily strange period recently really starting last summer with the scare set up by China’s currency devaluation. We then experienced the worst start of the year for equities since the great depression and either greater chaos in the debt markets caused by an incorrect read of weakness in China and weakening trends in the U.S. That was followed by a sharp and surprising market rally which left many money managers wrong-footed only to be hit again by Brexit in the last week of the quarter. And today, the S&P has moved back to an all-time high. Go figure, all kinds of odd things are happening that are affecting markets generally and are presenting what we expect could be very interesting investment opportunities.”

Transaction activity should be slower in the UK

” In the near-term transaction activity in the U.K. should be slower as decision-makers for businesses remains uncertain and market participants digest the potential impacts of the many different ways that Brexit can evolve.”

Brexit will likely have some modest adverse impact on global GDP

“Longer term, Brexit will likely have some modest adverse impact on global GDP. Although it’s too early to assess the full extent given unanswered questions like whether the U.K. will retain access to the European single market. Brexit will possibly constrain access to capital in Europe and you’re seeing those tremors hitting the banks and will embark the populist antitrade anti-immigration movements across the continent which is not good for the flow of capital and trade.”

Tony James

Credit markets are a great opportunity

“One of the areas of greatest dislocation in terms of technical factors is credit. The regulatory changes, the capital pressures on the banks, the weakness of their balance sheets and all those things accumulated to evaporate credit and credit markets – sorry, liquidity in the credit markets as Steve in particular has been commenting on. And that’s created a lot of pricing dislocation.”

“So I basically think credit markets in particularly illiquid credit markets are going to be a really, really great place to be going forward, thanks to the regulators and the government that are impairing the banks and the investment banks and the providers of liquidity. So very broadly this is a play on where we are benefiting from regulatory if you arguably overreach.”

Blackstone 1Q16 Earnings Call Notes

Stephen A. Schwarzman – Chairman, Chief Executive Officer & Co-Founder

The market tantrum resulted in lots of dislocation

“The market tantrum in the first part of the year resulted in lots of dislocation, some of which has normalized, some of which has not. For example, many hedge funds were caught wrong footed in a classic short squeeze when the markets rebounded in March. Segments of the debt market still remain under considerable pressure. Investment sentiment is fragile and characterized by significant caution around choppy economic data, negative rates, political rhetoric and other factors.”

Not seeing any softness

” Secondly, on the assets we’re selling, I would say the bids are still very good. We’re seeing no softness whatsoever. We’re seeing no turn in rents or occupancies. So, it all feels good to us.”

Only buy prime real estate

“I’d say that we’re not big buyers in Real Estate in secondary and tertiary markets. And one of the reasons we’ve been able to have really remarkable results in Real Estate is you have to pick your asset class but you got to pick your regions where you’re doing things. So, I would say, we are dramatically underrepresented in secondary markets and I don’t know of any part of our Real Estate business that even touches a tertiary market from like being involved with approving all the deals. So, our business is not Real Estate across the board, everywhere. ”

The biggest risk in real estate is over building

“I think the biggest risk in Real Estate are over building. And when you get excess supply, and particularly if demand turns down, that’s when you get crushed in Real Estate and we don’t see that happening right now.”

Michael S. Chae – Senior Managing Director and Chief Financial Officer

Deals are coming back

“with the sort of revival of the markets in the past few weeks, deals are coming back. And GSO had an investor conference yesterday, and we’re talking about how their pipeline has never been stronger actually. They’re really, really excited, chomping at the bit around the market opportunity Steve and I talked about. And the pipeline and the backlogs are picking up, and the pricing in terms available to them are quite attractive. ”

Hamilton E. James – President, Chief Operating Officer & Director

We have to be able to add value in the investments that we make

“Yeah. Well, in general, remember that when we buy a company, we’re supposed to bring value added. And I’ve said before, if we can’t bring value add and we can’t – there’s not enough opportunities out there that the world’s overlooked, and we’re not enough smarter than other people just to find them and make a lot of money on huge amounts of capital. That’s not really – that’s not a sustainable business model. So what we have to do is buy companies and make them better run, higher margin, faster growing, better invested, better management teams, more productive, et cetera.”

Blackstone 4Q15 Earnings Call Notes

The Blackstone’s (BX) CEO Stephen Schwarzman on Q4 2015 Results

We do not see a recession in the US but do believe global GDP growth is slowing

“It’s always possible that a market correction becomes something more significant, we at Blackstone do not see a recession in the U.S. We do believe that global GDP growth is slowing, we’ve seen a slowdown within certain sectors and regions in our global portfolio as a result.”

Stock price decline is not indicative of the fundamental value of our assets

“our stock price decline is reflective of what’s happening in the public markets and the mark-to-market movement of certain of our assets, which we do not believe is indicative of their fundamental value as measured by their operating results and their prospects. This temporary decline in value should normalize overtime.”

Right now you’re getting Blackstone on sale

“right now you’re getting Blackstone on sale. As I’ve shared before, we’ve done an implied stock price analysis for the next 10 years. Based on what we believe to be conservative assumptions of AUM growth of 8% to 12%. By the way, last year was 16, but we just like — we’ve some numbers for you, at 8% to 12% as well as lower than historical returns for our drawdown funds in the mid teams instead of higher and mid-single digit returns in our liquid strategies which has historically has been much higher. The implied total value for Blackstone shares over that 10 year period would be in a $100 to $125 per share area. That is including distributions and using what I believe is a reasonable yield of 5% to 6% on our cash flows. That $100 to $125 per share value equates to a multiple of money to U.S. investors of between four and five times today’s stock price.”

We’re not doing buybacks because I like cash

“the question is why aren’t we doing a massive stock buybacks now and one of the reasons is that I like cash, I like it like a lot of entrepreneurs like cash whether it’s the Microsoft people or the Google people or the Apple people, you like cash because it gives you the opportunity to take advantage of opportunities and what happens is”

There are no brave old people in finance because they get wiped out when they’re younger

“And for us to actually buy something there has to be a fit of values and culture and risk aversion because what I figured out is that there are no brave old people in finance, usually it get wiped out by being brave when you are younger. ”

Purchase opportunities come in adverse market cycles

“we found some really terrific opportunities and more of this stuff comes out of the woodwork when you have adverse market cycles than when you are at tops. At top everybody is self confident and happy and then when the tide goes out you see who is wearing bathing suits or whatever and maybe I was like, to have to be wearing them, but we are seeing some activity now, we will see what happens with it.”

I think the concerns about China are a bit overdone

“I think it’s sort of the — it’s always hard to know what everybody thinks, but sort of from trying to feel the consensus has been very negative towards China.”

” if you have half of your economy growing at 10+ and the rest is a mixed picture, you’re not in a world of hard landings other than the fact that people have lost confidence in some of the policy directions in the market place. So, I think that’s a bit overdone.”

It’s not the end of the world

“it’s not the end of the world. If you look at the stock market, I mean, you have to conclude, it’s like the world is ending. Well, I don’t think the world is ending. I think we’re going through an adjustment and people like ourselves who own long-term things and add enormous value end up at the end of the day being mega winners'”

Tony James

The longer oil prices stay low, the higher they will be in five years

“we could survive these prices for several years with the investments we are making and still we expect prices to be 65, 75 in four or five years and we will make some very, very nice returns. So, when we look at energy investing we look at surviving a long time where prices are today and then still getting very, very nice returns if we get back to prices 60 or above which are well below prior peaks. And ironically, the lower prices go today the higher they will be in five years from now because the more other new drilling and what not get shut off. So yes, we think it’s a very interesting time to put money out now, there is a lot of companies that desperately need capital, you can come at the top in some cases top of the risk stack, top with capital stack and still have equity like return and other cases great companies with good assets just have no alternatives. And actually, I think as the cycle unfolds it will get better and better and better because the prices start to move up the activity level will pick up quite quickly and so I think it will actually even get better as prices move up, it is the way to deploy capital.”

People are over reacting to the stock market

“I think people are over reacting to the stock market. I mean, we had whatever a seven year ball market without a correction. We were like just statistically got to be a way overdue for correction. And the backdrop of the S&P companies’ net income is weak, it’s been zero. So, fees have got high, I mean. And people look at the average S&P, that’s kind of a distortion. Look at the median company in here because the average has dominated, because it’s market evaluated by Apple and a few huge names. Look at the median P, and P is high. So, we had a correction, big deal. There’s enough going on. I think people are overreacting to that.”

Blackstone at Goldman Sachs Conference Notes

Blackstone Group (BX) Presents at Goldman Sachs US Financial Services Brokers Conference

Steve A. Schwarzman

US is slowing a bit but not tragically so

“the way we see things is the U.S. slowing a little bit, not tragically so and we have interest rates going up in the currency, looks like it will be going up for while and that sort of impacts U.S. economy a bit, It’s harder to export. So those types of companies aren’t doing as well and it also hurts the general stock market, because to the extent that you have earnings being translated from outside the United States that slows down growth rate, because the translation. But the U.S. is moving ahead on a pretty orderly basis and all probably have set increase in December and future increases I would assume will not be too robust, because that would slow the economy too much which I don’t is the Fed’s objective.”

We exist to buy things and add value

“The reason why we exist is to buy assets and do something do them rather than watch them and that’s what is called adding value, and if we’re good at it, we will end up with super performance and for our major product we earn about double the stock market over the 30 years. ”

We know oil prices are going to be somewhere in the range of $20-$120

“I had a funny conversation with ahead of to give this person some protection. The head of one of the largest companies in the world in the energy business and any business and I asked him what he thought about energy prices, he said “well we plan for somewhere between $20 and $120” and he said “I know it’s going to be some more in that range” and I said well that’s very precise.”

Over the last 26 times that rates went up the value of houses went up too because of inflation

“Well 25 over the last 26 times in history when interest rates went up the value of houses went up almost nobody. You have got a smart group here, yes, a third of you thought that but two thirds of you didn’t. And that’ the way it works. Why? Because you have inflation or you have people making more money with the economy growing and that tends to push up the value of houses. So that’s like the standard concern, oh, interest rates are going up, your real estate assets must be collapsed.”

We’re not guessing. When we buy an asset we have access to inside information

“it’s not like a trading business we are guessing. When we buy an asset, we have access to inside information. We study this stuff, we get consultants and we can accelerate the growth of these businesses and we can put some leverage on top of it which amplifies that a bit but it’s basically the improvement over business.”

People usually fool themselves that they want to buy value. They really want something that’s going up

“People more or less only fool themselves that they want to buy value. Basically they just want to buy something that’s going up and because they are looking for physiological comfort of things going up, things at bottoms people hardly ever buy”

This is an art form

“So I think somehow I must be a tragically bad communicator and somebody thinks this is some little business that somehow gets lucky. I mean we have 800,000 people just working in our private equity area. This is an art form, this is a business and people will see it as such when maybe we get somebody better than me explaining it, but it’s really a wonderful, wonderful business and it’s growing at quite a rapid rate and customers can’t get their money back as a rule because these long-term commitments. So it’s infinitely better than any kind of mutual fund complex or anything like that.”

Investment analysts are behaving in the exact opposite way of capital allocators here

“what’s fascinating to me is that people like yourselves who are looking at our stock are behaving just the opposite as the people who give us these monster amounts of money where we’re penetrating every asset class. ”

At some point people who don’t own this will wake up and say what was I thinking

“at some point in the next ex-years people will wake up and say, what was I thinking, what was I thinking and the smart people like you, who own it, you will be heroes and the other people will say, “yes, yes, yes I know I should have bought it.” So that’s demand.”

Blackstone 3Q15 Earnings Call Notes

We do not see a recession

“From our prospective, we do not see a recession, but we are seeing slowing in certain regions and sectors with some excess coming out of markets. Here in the United States with the dollar up 10% to 25% versus many other currencies around the world, we’ve effectively experienced fed rate hike without actually having with. With that said, we are seeing lots of positive sign as well.”

Restricted building has kept supply below demand

“Restricted building in real estate around the world we have supplied often below demand. Housing in the U.S. is strong and expected to get stronger. Office leasing is good; the auto and tech sectors are healthy and low oil price too should be good for the consumer. In the lodging space which has been one of the hardest hit sectors this year in terms of public market valuations, revenue trends actually remain quite strong. ”

US slowing a bit, Europe has bottomed. China is definitely slowing but not at dooms day scenarios

“Overall, we see good growth in the U.S. perhaps slowing a bit from 2014 levels. While Europe appears to have bottomed is growing slightly faster than we anticipated. Emerging markets, India is in very good shape growing at over 7%, while China is definitely slowing, but still growing faster than much of the world and certainly faster than the dooms day scenarios, I sometimes see on television. Brazil is facing significant challenges and a serious recession, but is becoming more interesting is an investment opportunity ironically as it weakens.”

Less access to financing allows us to do more favorable deals

“In private equity, where it’s been more difficult to invest recently because of high prices, the pull back in markets broadly is helpful to the extent that financing becomes less available, we can continue to pursue proprietary transactions with well defined value creation strategies and less leverage at the outset.”

The most sophisticated investors in the US have 50% of their assets in alternatives

“The most sophisticated investors in the U.S. really looking endowment have about 50% of their assets in alternatives. Both pensions have 20 to 25 sovereigns is still way behind that have a long way to go.”

The real estate sector will power through a stressed capital market scenario

“I think the real estate sector will power on in that environment. The only difficulty that sector would have would be access to capital that would slow it down at the moment that does not appear to be happening, the leverage sector, the price and availability in some kind of mix affected certainly on the junk side less on bank debt. Real estate will continue and all probability quite strong because their exits are not typically through public offerings, they are through sales of individual properties or groups properties.”

Real estate has been unaffected by public market turmoil

“the real estate assets which has remained very strong and we’re in the market with some assets, we continue to see strong interest apparently unaffected by the public market turmoil”

Our conviction is that todays spot prices are not long term energy prices

“our conviction that as I say that this is not – today’s spot prices are not long-term energy prices and I think if I’m right about that we wanted some very nice return for our investors and we’ve been very careful also in investing companies that are unlevered as Michael said or have plenty of liquidity to ride through the next couple of years to prove ourselves right, we are not making speculative bets that require quick bounces in energy prices.”

I would say our portfolios have outperformed the public markets

“I would say generally the underling portfolios are outperforming what you would see in the market and as you know we’re very careful about choosing sectors and companies. So we saw positive performance in both private equity and real estate and so the privates actually were up.”

Blackstone 2Q15 Earnings Call Notes

You can’t replicate what we do in public markets

“What we do at Blackstone can’t be replicated by investors in the public markets and very few can do it anywhere or at our scale. ”

OUr companies are outperforming the S&P on an earnings basis substantially

“trends remain healthy with portfolio company revenue and EBITDA up 5% and 12% respectively over a year ago. In other words, that’s a 12% increase in earnings. This compares to most estimates to S&P companies showing flat to down earnings. So, the outperformance of the companies we own is really substantial.”

I think rates will rise within the next 6 months

“There has been much focus recently on the Fed potentially increasing interest rates, which still hasn’t occurred despite most predictions to the contrary. I think this could happen within the – in the next 6 months, which Janet Yellen seems to be indicating in a well telegraphed and controlled way.”

I’d expect our portfolio to do better because it means the economy is doing better

“In a rising rate environment, I expect our portfolio, including real estate and credit to continue to perform well, which it has historically in that type of environment and that’s because rising rates have usually come – accompanied by better economic activity, which is obviously beneficial to the portfolio. And I personally think that any rate increase would be very, very gradual.”

Been able to deploy capital: here are the themes

“Despite more difficult investing environments in both private equity and credit, we have still been able to deploy significant capital. We have invested $5 billion for example in the second quarter bringing us to $26 billion invested over the last 12 months. The dominant thing – themes include distressed real estate in Europe, European credit, energy and opportunities created by the pullback of financial institutions globally, including mortgage lending and tactical opportunities, special situations deal flow.’

We are functioning on a completely different scale than we were 5 years ago

“we are functioning now with a completely different scale of operations than we were even 5 years ago and we are continuing to create fantastic performance despite that.”

We retain one investment committee for the global business

“As we have expanded and further globalized our businesses, we kept the strong focus on keeping our internal culture intact and ensuring Blackstone quality across regions and products. We never franchised out decision-making and we retain one single global Investment Committee for each of our business lines. Our investors have confidence that when we invest anywhere in the world, we are doing it with the same process driven analytical rigor that has defined us in our performance for the past 30 years”

We find opportunities that don’t depend on public markets

“Our outperformance comes from the fact that our core fund strategies for finding opportunities and creating value do not depend on public markets. The value created in private equity and real estate comes primarily from operating earnings growth demonstrated this quarter and over the last year by double-digit fundamental growth ”

When you own something for a long time you have to have conviction on what is actually going to happen

“Once we buy an asset, we own it for a long, long time. So you got to have – you got to be able to develop conviction around what’s really going to happen and that’s hard right now.”

It’s a little more challenging to put capital to work at record levels

“Private equity, it’s a little more challenging to put out capital at record investment levels. In real estate, an awful lot of the money has been put out in America in the last few years and that’s markets becoming tighter.”

Todays markets don’t feel undervalued but not peaky either

“Well, I think if the market conditions of today are reasonably stable, you will continue to see a high level of realizations. Obviously, if the markets fall out of bed, they will go down. And if the market gets hotter, it will probably accelerate. But in today’s markets, which the S&P is at about 16 PE, they feel not undervalued, but not peaky either in these equity markets. You will see a high level – you will continue to see strong realizations.’

There’s a hidden retirement crisis in America because Gen X/Y can’t get better than 4-5% on their investments

“I have the view that the hidden crisis in America that no one is talking about is what’s going to happen with all of these 20, 30, 40-year-olds who no longer have corporate pension funds of defined benefit, so they have got 401(k)s and they are making little contributions in there, which is earning very, very little. When they retire at 65 and they don’t have enough to live on and it’s an entire generation, maybe two generations of people, we are going to go, oh my God, what happened? And if they can’t invest money at higher returns than 4% to 5%, which is all the public markets are going to give you, we are going to be in trouble as a country. So, I think that Blackstone has an obligation to save the country by delivering superior returns consistently with reduced, I would say reduced, lower risk in public markets to retail investors.”