Thanks, everybody. We're gonna get going with our next session. Thanks, everybody for coming back. Hopefully, everyone is well fed after lunch. It is my pleasure to welcome Jon Gray, President and CEO of Blackstone. With over $1 trillion in assets under management, Blackstone remains the largest and most diversified alternative asset manager in the world. Despite what obviously been a challenging backdrop for capital markets, Blackstone saw nearly $140 billion of gross capital raised over the last 12 months and continued to execute on a number of growth initiatives. Importantly, I think a lot of this also has not turned on fees yet. So as we look forward, the firm is facing a really nice growth tailwind as we enter 2024. So, Jon, thank you for being here. Welcome downtown. It's great to be here. You know, Congrats on this conference. It's a little bit of a schlep, but, you know, once people are here, they're here. So look, I would love to get your perspective on 2024 economic outlook first. You guys have such an incredible breadth of investment capabilities and unique insights around the world. What's your outlook for the economy for 2024? Sure. I guess I'll start with a little bit of optimism. We do have this unique perspective, given we have more than 250 companies, where we get a lot of real-time data. And the optimism starts with what's happening with inflation. Really, for almost a year now, we've been saying we're seeing it come down. Certainly, we're seeing it in materials and goods, which those physical items are starting to deflate. In labor markets, you know, we're now in the fours in terms of where wages are growing. Where if you think about where the Fed ultimately wants to go, which is 2% productivity, 2% inflation, we're heading towards that. If you look at rental housing, shelter costs, the government data in the latest CPI is still showing 7%. Mm-hmm. It's a little bit like the weather from nine months ago. Mm-hmm. I think the reality is far lower than that. And so we think as you go into 2024, this trend will continue, where we'll get good inflationary prints. And it's not just a U.S. phenomena, it's a global phenomena. And the second bit of positive news is we've seen good strength in the economy, resilience, right? Unemployment is still sub 4%. Our companies had strong revenue growth in the third quarter. We had just one default in our 3,000 non-investment-grade corporate credit borrowers. So that all looks good. I think the challenge is just the weight of all these cumulative increases in interest rates, combined with the central bank here and around the world, shrinking their balance sheet. Mm-hmm. And if you think about people borrowing to buy a house or car at 7.5%, or you think about a company who had a swap in place or debt that comes due and the new cost is several hundred basis points higher or more, it's like taking oxygen out of the room. And so what we're seeing now in businesses is sequential deceleration in revenue. It's not falling off a cliff, but you see it slowing, and you're seeing consumers become more cautious, businesses become more cautious. And if you look at our companies, a year ago, their headcount was growing 7%-8%- Mm-hmm. And now it's basically flat. Mm-hmm. So I think we all have to anticipate that it's gonna be a slower economic period next year, that we will see less growth and we'll see an increased level of unemployment. Now, we don't believe this is 2008, 2009. We don't have those kind of imbalances in housing, in financial services, in consumer balance sheets, but we're going to see a slowdown. And if I just summarize, it's almost like a four-act play. Mm-hmm. Act one was huge stimulus in response to the pandemic, both monetary and fiscal. Act two was a surge in inflation that came about as a result of the stimulus. Act three was central banks showing up and saying, "Hey, we got to put out this fire. Mm-hmm. We're going to raise rates a ton and shrink our balance sheets." Act four is: the economy feels that and slows down, and that's the lens through which we're investing. I got you. Well, let's talk a little bit more about what that means for private markets. And I would love to start with a question just broader private market allocation trends. And again, similar to my first point, you guys have more products and capabilities probably than any other alternative asset manager, so you have really good perspective on this question. But, you know, for the better part of the last decade, we've been in a close to zero rate environment, and many would argue that really drove a lot of assets towards private markets. As the world normalizes, and albeit, you know, rates might come down a little bit, but they're probably going to stay fairly elevated relative to what's been. How does that change institutional appetite for alternative assets, private markets, and then the mix between the different assets within it? So I guess I'd start with, on the institutional side, that it is a challenging environment. We've talked about it publicly. We've talked about it on earnings call, obviously, there's volatility. People are cautious. They're not seeing the same returns of capital and realization, so in some cases, they're over their target allocation. That's the near-term headwind. A few facts that I think are relevant: One, you referenced up front that we raised $140 billion over the last year. A little more than half of that was from institutions. So despite all those tough headlines, we were still able to raise more than $70 billion from those institutional clients, and I think that obviously reflects their confidence in us and our track record. The next thing I'd say is, I spend a lot of time on the road- Yep. which, now that my kids have left, my wife and dog definitely notice this, I think. I hope. In the last two months, I've been in Asia, I've been in Europe multiple times, the Middle East, Canada, across the U.S. and meeting, doing a bunch of things, but also meeting with clients, and I don't think I had a single meeting where the client said, "I'm reducing my allocation to alternatives." Some may be holding it, many want to increase it, and I think that is the most important sign. Now, what they want today is starting to look a little bit different, right? So they're more cautious about real estate. They may be over-allocated to private equity. They may be more cautious about growth, but they are showing significant enthusiasm for private credit, which is logical, given that base rates have moved up so much. Spreads in many areas, like direct lending, are wide, and you're able to get equity-like returns, taking debt-like risks. They're interested in energy transition, where we have big platforms in and equity and debt. They're interested in secondaries, where we are the largest player in that space. They're interested in infrastructure, where most of them are under-allocated. Again, we've built a business from zero to now over $40 billion. So I guess I would say is, it's clearly a tougher fundraising environment- Mm-hmm. But the long-term trends remain in place, and there are a number of areas where there is significant enthusiasm, and that gives us a lot of confidence as we look forward. And I think that narrative, oh, rates were low and alternatives grew, now rates are higher, they're not going to grow, I don't believe that's true. Right. Great, let's talk a little bit about the deal activity outlook as well, again, through the lens of kind of the macro outlook that you've outlined. What's your best guess on deployment and realization activity, for 2024? Well, I would say in terms of activity, what you need for transactions is confidence. You need terra firma. And if you think about this year, we've had two shocks that undercut that. First, in the spring, was the banking crisis. That forced markets and actors... You know, people get more cautious, buyers, sellers, lenders. The second shock would have been the sharp upward movement in rates, late summer, early fall. What will change that, of course, is if people get confident central banks are done, if the long end settles in here, then you can start to see transaction activity pick up. And the thing about transactions is, I think of it almost like flotation devices below the water. Mm-hmm. And Goldman knows this better than anybody, having seen M&A go up and down over time, is that there are private equity firms who want to sell things. There are families who want to sell things, companies, institutions. There are all sorts of reasons, and all you need is an environment where things are more measured, calmer, and the transaction activity starts to pick back up. Mm-hmm. I do think the key thing will be a settling of the rate environment. Now, it's possible in the first half of the year, a bit of the deceleration in the economy could create some more volatility in markets. That may slow things down, but I think rates settling will be a very important component to see transaction activity start to pick up. And I would say, interestingly, even for us in the last few weeks, you know, we've seen a little bit of a pickup, certainly in our private equity business. Yeah. Yeah, for sure. I know we've noticed that. Let's talk about Blackstone a little bit more specifically. I want to start with private credit. You made some interesting changes in the structure of that business. You're kind of bringing a couple of components together. You're integrating your kind of direct lending, asset-backed finance, and insurance subsegments all under one umbrella, with the goal of taking that business from $370 billion to, I think, $1 trillion over the next 10 years. So big numbers, but help me understand maybe a little bit what bringing all these pieces together means. Why does that accelerate the growth- Yeah and kind of the prospects you're seeing? I think it starts with sort of the big picture, the mega trend, which is what's happening in private credit. So if you think about our institutional clients we talked about, and you went back 30 years ago, they would've been 60/40 stocks, bonds, or 70/30, and all liquid. And over this multi-decade period, they've moved their equity book, a big chunk of it, into alternative assets: private equity, growth, real estate, infrastructure, and so forth. But that fixed income portion has basically stayed fully liquid, maybe distressed debt was done. And the insurance company similarly, basically owned, other than maybe commercial mortgages, they owned all liquid securities. And yet, if you think about the pension funds and the insurance companies and the duration of their capital, why shouldn't they trade some portion of their portfolio liquidity for higher returns? If you look at our major insurance clients today, this year, on average, their books are something like triple-B rated. Mm-hmm. This year, we've originated for them single-A credit, and the spread has been more than 180 basis points wider than a comparable liquid security. Mm-hmm. If you think about how powerful that is to their business model, that's why you're seeing this migration. It's not happening because we're eroding credit standards. In this case, we've improved credit. Mm-hmm. It's because we're moving to a direct-to-customer model. So again, there's still going to be a large need for liquid fixed income. No pool of capital is going to do all private, but could you go from 0% - 25% in private investment-grade credit or some non-investment grade credit? And why is the spread higher? The spread's higher because when financial institutions originate those loans, let's say it's an asset-backed loan. What they do is they, you know, of course, charge fees up front. Yep. They do a securitization, rating agencies that have costs, and then they bid out those bonds to the world, and they keep that excess spread. If instead, the insurance company, we, and we're not an insurance company, we're purely an investment manager, but we have a number of very large insurance clients and SMAs, we make that exact same loan and just chop it up- Mm-hmm. Then the net economics to those insurers is much higher, and that's essentially what's happening here. So if you think about that on the broadest terms, if you are a longer duration pool of capital, some portion of your assets can be private. And that's why this trend, we think, has the ability to run much further than where it sits today. It's not just non-investment grade direct lending. It's asset-backed, it's infrastructure, it's real estate, it's private placements, investment grade. I think there is a very big opportunity in that space. That's why we think there's a lot of room to run. Great. Let's build on that a little bit, especially as it relates to investment-grade private credit. Can you talk about Blackstone's origination capabilities in that space? And we've heard quite a bit, quite a bit, including from you guys, about forming bank partnerships. What would those look like? Where are you in that sort of journey? Yeah, and I will go back, Alex, to the first part of your question on the merger of the different functions- Yeah ...Blackstone specific. So what I would say there is we were set up in different units. We had corporate credit, asset-based, and insurance, which is mostly credit, in different areas. Mm-hmm. And so when we would show up to a borrower, they would have to talk to multiple people, depending on the asset class or the risk level, and that wasn't very efficient. When we went to see our clients, our investors, we'd have to show up with multiple groups. It didn't take a genius to say, "Hey, wouldn't one-stop shopping be much better for our customers? Mm-hmm. On this, the more recent question on partnerships, we've done with banks at this point, I think, six partnerships, about $7 billion of assets. And it's totally logical because if you think about a large-scale regional bank, they've got amazing set of relationships, and maybe they're making home improvement loans or equipment finance loans. But because their balance sheet is shorter duration, when you think about the deposits, it's helpful for them to have a place that could hold that. They could continue to service. They could keep fees. They keep the, you know, the privity of that relationship with the borrower. So we think that area will continue to grow, and then we think we will continue to establish with non-banks, other strategic partnerships as well. Mm. Mostly in the asset-based area, where you need capabilities to do things like aircraft, rail car, those sort of things. You need some real technical expertise, and we're continuing to broaden this out. But we do not intend to have a balance sheet. We do not intend to own these platforms on the Blackstone balance sheet. We're going to do it with partners, and with some of the groups we manage capital for. I got you. As a follow-up to that, and speaking of banks that know quite a bit about regulation over the last decade or so, one of the more frequent questions that I get from investors is like: "Okay, private credit is great, and we get the prospects, and we get the growth. What about the regulatory risk?" So how do you think about the regulatory risks in private credits as that asset grows, as that becomes a bigger source of credit to the economy as a whole? And by the way, we'll talk about wealth management separately. Yeah. You know, some of these assets are making their way into the retail channel also, which probably increases the regulatory focus. So I'd start with lending is not a fundamentally risky activity. Buying equity is obviously much riskier than lending money. The risk involved in credit is the way lending is financed. So if we give a simple example, if I took $100 out of my pocket and I gave it to you, Alex, and you have a good job at Goldman Sachs, and I said, "Pay me back in 5 years," I'd feel pretty good about that. I think it would be hard to argue that there is systemic risk around that, or if I did that on behalf of one of my pension fund clients. If you think about how the bank does that, and banks are absolutely critical parts of our financial system, the bank actually has $7 in its pocket. It borrows $93. Most of that is in the form of short-term deposits that can be called, as we've seen in First Republic, Silicon Valley Bank, in a very short period of time, and those deposits are guaranteed by the U.S. taxpayer. So there's a reason why there's a different regulatory framework for that activity than me just being a third-party money manager. As you get into managing money on behalf of insurance clients, they're the insurance companies themselves- Mm-hmm ... are regulated, and fundamentally, for the firms or some of our competitor firms who become insurance companies, they would point out that the duration of their liabilities is much different than the banks. Yeah. But the good news is, when regulators look at the leverage, the liabilities, and the structure of what we do, they have, for the most part, seen that it is fundamentally different. I think there'll continue to be scrutiny. I think we'll continue with the engaging, but we feel very good about how we're doing this, and we would actually argue, because of the match funding, we're dispersing risk in the system in a pretty material way, and in many cases, de-leveraging the lending activity. Are the regulators receptive, I guess, to that argument, or how frequent, I guess, are those conversations right now? I would say the regulators are pretty sophisticated, particularly here in the United States, and they understand the difference if I'm managing money, as I said, for a pension fund or even for individual investors, our large-scale BCRED, BDC is now less than 1x leverage versus a bank that's 12x or more leverage. And so the regulators, I think, get that, and I think there will be continued focus as this industry grows. But it's not happening because there's some big risk building up in the system. I gotcha. That's helpful. Let's talk a little bit about real estate. It's still Blackstone's largest reported segment. You're obviously a diversified firm, but that's, you know, real estate is about 40% or so of your business today. As you pointed out earlier, LP demand continues to be fairly muted here for many reasons that we know. Can we talk a little bit about the fundamentals that you see in your real estate portfolio today? And then on the flip side, what kind of interest rate backdrop do we need to see in order for that LP demand to start coming back into the asset class? So you've hit on the key things. I would just say, if I break it down, the real challenge is in the office sector, right? Something that we, particularly in the U.S., traditional office, is a very small percentage of what we do. And it happened because of the CapEx growth in that sector over time relative to the rental growth. We had no idea COVID was coming. But I think that sector, the fundamentals remain challenged. The vacancy rates are pretty significant. The CapEx needs are high. Capital's pulled away. I don't see that changing dramatically. Now, there may be a clearing price for assets at low levels. That'll be interesting. Newer buildings will do better, but that's a challenge. Yeah. I think the interest rate picture, which you commented on, is a challenge, and certainly 45 days ago was even more challenging- Yeah - than it is today. And I think what's happening in the system is the higher cost of capital is moving cap rates up, and investors are digesting that in their portfolios, and there's probably a bit of a lag to your question. Mm-hmm. As you look forward, what are the positives here? I think the positives are many of the sectors do have pretty good fundamentals. So our biggest sector by far is logistics, and last mile logistics. logistics overall, rents are still growing, high single digits. Vacancy rates are low single digits. We continue to be hugely interested in the sector. It's more than 40% of our portfolio. Areas like student housing were a big focus. Again, fundamentals good, rents growing, high single digits. Data centers, which we have in BREIT, in our core plus area, also in infrastructure, incredible demand in that space and rents growing nicely. You know, we single family housing, rental housing's held up well. We have seen deceleration in multifamily and hotels, but nothing like what we had back in some of, I would say, the early 1990s or the 2008, 2009, in terms of imbalances, vacancies, those sort of things. So the fundamentals, with the exception of office, are pretty good. And then as we look forward, I think there are two potential positives. One, new supply is coming down, in the major sectors, down 30%-70%. That's obviously very helpful and sets the stage for a recovery in real estate. And two, back to your question, rates will come down. And I think the way it will work is when they settle at a level, and the pricing has adjusted, and the fundamentals start to look better, people will start to move into the sector. Now, for us, the good news is we have more than $60 billion of dry powder in real estate, and we're not going to wait for the all-clear sign. Mm-hmm. So we're going to start doing things in scale. We've been more active on a relative basis in Europe, where there's been more distress in real estate- Yeah but we think it's a very interesting time to deploy capital there. On the flip side, we talked a little bit about deployment, but how does the current backdrop in real estate affect the outlook for realizations and for Blackstone, specifically, performance-related fees in this business? Yeah. Well, we've talked about it. It's, it is a tougher environment near term on that. You see that in the realizations in our opportunistic funds. BREIT, this year, has not had incentive fees. In our core plus real estate business, as, as an example, we have a life science building vehicle that has a crystallization at the end of the year here, in a few weeks. We now expect that we won't hit the 7% hurdle. We won't generate incentive fees from it. But when we step back, we say a couple of things. One is we've done a very good job. We'll end up probably just below the hurdle. Great outperformance relative to other asset classes our investors gave us capital. And three years from now, will owning a portfolio that's majority research buildings in Cambridge, Massachusetts, in my opinion, be worth materially more? I think so. So I think it goes to our broader story, which is, yeah, near term, there are more challenges, obviously, in realizations and incentive fees. But if you've deployed in really good sectors, and as a firm, what we've done in real estate, our sector selection or in private equity, some of these big areas, what we've done in life sciences, in digitalization, in green energy, I think all of this is going to pay big dividends. And ultimately, in our business, it's about the performance we deliver for our customer. Yeah. Every quarter I talk about that first, because it's that performance that continues to give them confidence to allocate capital to us. Great. You mentioned BREIT. Let's talk about the wealth business- Yeah For a couple of minutes. Very important and very impressive business you guys built for Blackstone over the last couple of years. So BREIT redemptions are moderating, which is good news, and BCRED flows are seeing meaningful improvement, especially when we kind of look at growth, sales, and momentum you guys are having there. Talk to us a little bit about expectations for growth in both of these products into 2024. And then, of course, maybe some things that are either still in the lab or about to come out of the lab on the wealth management side. Yeah. So I'd say on the macro, again, I start with there's $80 trillion of wealth around the world with $1 million or more in their accounts, and we think they're about 1% allocated to alternatives. When we look at our institutional clients, they're 25%-30% allocated. I don't know if individuals will go to that level, but there seems to be a lot of room. I think the key innovation was when we figured out seven years ago with BREIT to create a semi-liquid product. It wasn't daily liquidity, which sometimes the press doesn't fully appreciate. It was a design that you were trading some liquidity for higher returns, but it wasn't 10-15 years in our drawdown funds. To us, the key thing is, again, are we delivering for the customers? In the case of BREIT, I think we've delivered over that seven-year period of time, four times the public REIT market, and we've done that with really great sector selection and a really smart long-term approach, fixed rate balance sheet, when rates were much, much lower. And I think when you look similarly at BCRED, our non-traded BDC, there we've been 10% net since inception, big premiums over leveraged loans and high yield, and virtually no defaults. And so when we talk to our customers out there, they're very pleased with what's going on. Now, allocations inflows into BREIT are still muted, but you rightly pointed out that we've seen redemptions fall by two-thirds at this point. People are getting back substantially all of their capital in three months or less. The trends there obviously look good. In the case of BCRED, we raised in the last quarter nearly $3 billion, and the redemptions there are back to levels of September 2022, which is- Mm-hmm - the same story in BREIT. Yeah. So we think we've got a lot of positivity from our customer base, and we are now, to your point, about to start a private equity vehicle that will offer a range of activities, traditional private equity exposure, but growth, life sciences, secondaries, tactical opportunities, some of the opportunistic things we do across the firm and do it U.S., Europe, Asia. We think the scale of that will allow us to do something that's truly differentiated. I think, you know, our push in this area by hiring 300+ people, by developing relationships with financial advisors and customers now over a long period of time, that this was a very good strategic decision. Even though we're in a period where things are a little more muted today, again, the long-term trend towards more alternatives and towards Blackstone, given our track record and brand, we think those things are very much intact. Yeah. Let's spend a couple of minutes on Blackstone's PE fund that you are in the process of rolling out. We've seen when you came to market with BREIT, of course, and then secondly, with BCRED, those scaled very quickly, and you have a lot of embedded distribution partnerships already, so it's kind of easier to get some of these products out there. Is that the path that you see for the private equity fund, or is so fundamentally just so different that it'll be a much slower build? You know, what I'd say is it's got different structures. I'm not going to go into the full details here, but what I would say is that the clients, I believe, want exposure to private equity in a simpler format. The reason these semi-liquid vehicles were created was easier reporting, drawdown, tax. The structures work better than the traditional drawdowns do. I believe because of the strength of our relationships, we will be able to build something over time here of scale. It's a little different and more yield-oriented credit in real estate- Mm. So it may take a little more time, plus, we're entering an environment of greater uncertainty. But it is my expectation that this will be a sizable scale vehicle. Yes, is the answer. Got it. Let's talk about BCRED for a couple of minutes. Again, lots of momentum in the business. It sounds like at a high level, you're not really seeing any red flags as opposed to credit trends, but, you know, credit cycle is definitely top of mind for people. So I'm curious how you think a potential credit cycle will play out with respect to redemptions in BCRED and whether there are any parallels that we could draw from on the BREIT experience. Yeah. So I'd start with BCRED today. As I mentioned, virtually no defaults. We've been very conscious of how we set up the credit of the portfolio, so we're almost all senior. The average loan to value on the private book is 43%, so very large equity cushions. We focused on companies that were less cyclical and less capital-intensive, more software, healthcare, business services, and we really focused on bigger companies. So our average companies have, I think, something like $850 million of revenue. These are bigger businesses that historically have defaulted at lower rates. So we've been very focused on that. And then going to the structure, what we would say there is, there you've got quarterly liquidity as opposed to monthly and a delay- Mm-hmm ... which I think is a helpful innovation in that structure. We also run the business with something like, in our latest filing, $9 billion of excess liquidity lines and other things. So we feel really good about how we position it, but it starts and ends with the credit quality. Yep. That gives us a lot of comfort, even if we head into a bit of a more challenging period. The fact today that we're starting in such a strong position, credit-wise, and that we have almost all senior credit, that makes me feel good. ... Gotcha. Well, I would love to ask one more question. We have a couple of minutes left, and really it's just about the stock itself. It's obviously an equity-focused stock, audience here. So when you became president, you talked about making the stock easier to understand and easier to own, and that involved a number of things. It's simplifying the reporting structure, and obviously getting the S&P 500 inclusion, which was the major catalyst that we saw earlier this year for you guys. So as you think about the next major catalyst for the stock, how would you articulate that? Well, look, you hit on the fact that we are going to turn on some of these funds, which helps. I mean- Yeah ... with the commitment of some of these recent private equity deals, I would expect that fund would start early next year. That's probably the idea we're turning on funds is probably in the market. I'd say then the near-term catalyst goes back to the beginning of our conversation, which is we've got this powerful management fee base, right? Our management fees for the last 55 quarters have gone up YoY, every quarter, which I think is pretty remarkable and speaks to the underlying strength of the business. But then we also have incentive fees, and we have realizations. And when the market normalizes, I think you'll see more and more of that. We have over $6 billion of net accrued carry on the balance sheet. Mm-hmm. These markets can turn quickly. We saw it in 2020. After COVID, I remember being on calls thinking it was going to be a very long time. Of course, the markets turned pretty quickly. When that happens, that's obviously the catalyst, because you've got a bunch of that earnings power in hibernation. I think the longer term is just this migration to alternatives- Right ... which is, institutions are going to continue, we think, to increase their percentages. Individual investors and insurance companies are going to increase theirs meaningfully off a very low base. We have a very special platform that does all sorts of things around the world. We built up incredible relationships, capabilities, insights, what we do on purchasing and data science and brand and so forth. And I think the special sauce in all this, which is sometimes hard to capture in the financial analysis, is we have a brand. Right. That brand enables us to grow our business without using capital. You know, if you look back to almost six years ago, we have basically the same amount of shares outstanding as we did back then. We're still operating with virtually no net debt relative to our $140 billion market cap. We have no insurance liabilities. We're raising capital, utilizing our brand and our reputation and our relationships, our capabilities. When we get to a better environment here... By the way, when all that good realization stuff happens, the clients will get more capital. They'll be allocating more. People will feel more comfortable as individual investors to allocate. There is a virtuous cycle element to this. I think this continues. As shareholders, of course, we, the insiders, own 40% of this company, or almost 40%. We're highly aligned with shareholders. We're driven at our firm to keep doing a great job. First, for our customers, it all starts and ends with net returns. We deliver for them. And then continuing to drive forward, obviously, as a company, by serving our customers well and continuing to grow and innovate. And that formula and the drive into place, which Steve really put into the DNA, that has not changed at all. We want to win, we want to be successful, but we certainly recognize near-term, this is a bit more of a challenging period. Great. Well, that's a great way to end it. Thank you so much. We really appreciate you being here. Thank you, Al. Thank you all so much.