Prepared remarks
Good day, and welcome to the Blackstone Second Quarter 26 Investor Call. Today's conference is being recorded. At this time, participants are in a listen-only mode. If you require operator assistance, please press zero. If you would like to ask a question, please signal by pressing 1. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I would like to introduce Tucker, Head of Shareholder Relations. Please go ahead.
Thank you, Katie, and good morning, and welcome to Blackstone's second quarter conference call. Joining today are Stephen Schwarzman, Chairman and Chief Executive Officer; Jonathan Gray, President and Chief Operating Officer; and Michael S. Chae, Vice Chairman and Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-Q report in a few weeks. I would like to remind everyone that today's call may include forward-looking statements which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-Ks. We will also refer to non-GAAP measures, and you will find reconciliations in the press release on the shareholders' page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent. On results, we reported GAAP net income for the quarter of $2.4 billion. Distributable earnings were $2 billion or $1.52 per common share, and we declared a dividend of $1.29 per share, which will be paid to holders of record as of August 3rd. And with that, I will now turn the call over to Stephen.
Good morning, and thank you for joining our call. Blackstone reported outstanding second quarter results with distributable earnings up 26% year over year to $2 billion, as Weston mentioned, approximately the same rate of earnings growth we delivered in the first quarter. Fee related earnings grew 22% year over year in the second quarter, while net realizations rose 27% despite the geopolitical volatility. Total inflows reached nearly $70 billion in the quarter, and over $260 billion for the last 12 months, lifting assets under management 11% year over year to a record $1.35 trillion. The most significant driver of these strong results continues to be the large scale investments we made in artificial intelligence related areas, including data centers, energy and power, and the frontier AI companies themselves. These investments are leading to standout results in numerous strategies across the firm and are supporting our momentum in fundraising, deployment, and as we start to monetize some of the substantial gains we have been building in these areas in performance and revenues. Over the past several years, we have been regularly sharing our views on the transformative potential of AI and how we have been positioning the firm to benefit from the paradigm shift that is underway. Blackstone has become one of the largest private capital providers in the AI ecosystem, a position that gives our investors unique access to the remarkable opportunities emerging in this area and allows them to share directly in the extraordinary potential upside. Many of these opportunities, of course, cannot be replicated in the public markets. We built the largest data center development business in the world, and demand for compute is accelerating. We became one of the most active private investors in power and utilities, and energy demand is significantly rising. We invested directly in some of the fastest growing private companies in the world, including Anthropic, OpenAI, and SpaceX. And we are now creating new companies and platforms that we believe will play a critical role in the advancement of AI, including four in the second quarter alone. First, we teamed with Google to build a new AI cloud provider powered by their TPU chips, investing up to $5 billion initially. We think this business has the potential to scale quite significantly over time as the first neo cloud for TPUs. Second, we partnered with Anthropic to form a company focused on driving enterprise adoption of their AI-powered solutions, helping firms to realize the vast potential of this technology. Third, we joined Broadcom and another manager to create a financing platform in support of Broadcom's deployment of large scale AI compute for their end customers. The platform provided $35 billion initially to deliver 1 gigawatt of compute, representing the largest private credit investment in history, with much more to come. And fourth, alongside these partnerships with leading AI companies, we launched the Blackstone REIT known as BX DC, something public market investors can access directly, to acquire stabilized, newly constructed data centers. The $2 billion offering represented the largest blind pool REIT IPO in history, a testament to our leadership position in this sector. The market for long-term ownership of stabilized data centers is nascent today, but we think it could grow to $1 trillion over time and beyond, representing massive potential for BX DC. In addition to these new ventures, we are seeing extraordinary momentum in our data center platform, which has grown to $185 billion of total value, including facilities under construction, up from $130 billion at the start of just this year. We expect to lease over three times more capacity this year than any other year in our history. If we execute on our pipeline, our data center platform could double over the next few years. Growth of this type, underpinned by long-duration leases with some of the highest quality and most creditworthy customers in the world, is a compelling illustration of what can be created in private markets. While it is still early in the life cycle of our data center investments, as one indication of their significant embedded value, we recently sold our stake in a collection of fully leased assets that are still under construction at a multibillion dollar gain. Meanwhile, in energy, we continue to actively invest to help meet rising global demand, including in utilities, utility services, renewables, pipelines, LNG, and electrical equipment across both equity and debt. We have generated highly differentiated returns for LPs in these areas as well, as highlighted by the performance of our energy focused strategies. Last week in Credit, we announced a $5.3 billion investment for leading energy infrastructure company Williams to support multiple development projects to power data centers. This investment provides yet another example of Fortune 500 companies looking to private markets for customized, long-duration capital solutions. I am sharing these examples to highlight the remarkable scale of capital needed for the AI build out and the unprecedented opportunities it is creating for Blackstone and our investors. At the same time, there are investment risks and uncertainties that accompany the rapid growth of AI, along with important societal considerations. In terms of risks, we are mindful of the potential for excessive exuberance in this area, and we have carefully chosen our spots, leveraging our scale and knowledge advantage to build conviction. We focus on identifying compelling risk-adjusted returns with upside potential and, in many cases, meaningful downside protection. On the societal implications of AI, I have been extensively engaged on this topic since I made a major donation in 2018 to MIT establishing the Schwarzman College of Computing. This includes a focus on AI safety. I have been spending a lot of time with leaders in the industry and various policymakers to think about how to address this critical issue while also preserving the advancement of America's AI leadership. In addition, the firm is working closely with our portfolio companies, including our data center businesses, to address the workforce, environmental, and community implications of development through the creation of union jobs, workforce training, water-free cooling systems, expanded power generation, and significant local economic investment. Our goal is for these projects to contribute to the success of the communities we serve. Overall, I believe the potential change from AI has precedent in the industrial revolution and the commercialization of electricity. Each time in history there has been this type of dramatic change, economies have adjusted, and the standard of living for virtually everyone in society is improved over time. We believe the future impact of AI will echo these previous periods but with more rapid implementation and complexity. Major change of this type also creates anxiety due to the uncertainties of how the technology will evolve and its ultimate impact. We will need to monitor these developments as a society and course correct when necessary. In closing, we are in the early days of what I believe will be the most consequential transformation in industry and markets in a generation. Private capital will play a vital role in these advancements, and Blackstone is the leading firm. I have great optimism for what is in store for our investors and for shareholders; our stock is on sale today, and we believe it represents one of the most inexpensive ways to participate in this extraordinary megatrend. With that, I will turn it over to John.
Thank you, Stephen, and good morning, everyone. The seed planting we have been doing across the firm around AI and AI infrastructure is generating outstanding returns. A relentless focus on investment performance remains our true north. Our clients are responding with robust inflows across all of our major fundraising channels: institutions, insurance companies, and individual investors—the three I's. At the same time, the IPO market is strengthening, setting the foundation for greater realizations and performance revenues over time. I will speak about each of these dynamics in detail, starting with our institutional business, which remains the core engine of our firm. Investor affinity for Blackstone is as strong as ever, and we are seeing our momentum accelerate across numerous areas. In infrastructure, we launched our dedicated platform eight years ago, and today, it is a rocket ship, with AUM growing a remarkable 40% year over year to $90 billion. AI is powering our investments in digital and energy infrastructure in particular, leading to an 18% net annual return since inception for the commingled VIP strategy. Meanwhile, our multi-asset investing business, BXMA, is experiencing a renaissance. We originally entered the hedge fund of funds business in 1999 and effectively relaunched this platform in 2021 when we brought on Joe Dowling to lead it. BXMA has now delivered 25 consecutive quarters of positive returns for its largest strategy, with Q2 representing the best returns in six years. AUM reached a record $109 billion, up 21% year over year, representing its fastest organic growth in nearly 15 years. Post quarter end on July 1, BXMA reported an additional $4.8 billion of monthly inflows, its best single month of fundraising in history. Turning to our institutional drawdown area, which is accelerating, we are raising a new cycle of funds across a number of high-conviction strategies. Three of these funds hit their hard cap so far in 2026 with excess demand: an opportunistic private credit, life sciences, and Asia private equity. We expect our new private equity energy transition flagship to hit its hard cap soon as well. Taken together, these four strategies represent nearly $40 billion. Our Asia PE flagship held its final close in the second quarter, raising $13.1 billion—more than double the previous vintage—on the back of a 27% net annual return in the prior fund since inception. Our decision to focus on India, where we believe we have the largest alternatives business, and Japan has been a key driver of this performance. Our fifth CEE energy transition flagship closed on nearly $6 billion in the second quarter, already equal in size to the prior vintage and on its way to an expected $8.7 billion. In secondaries, we have raised over $14 billion to date for our new buyout flagship with a target of at least $22 billion. And in Credit, we held closings for new drawdown vehicles in direct lending and asset-based finance. Overall, our institutional business has extraordinary forward momentum. Stepping back for a moment to Credit, where our combined platform has grown to nearly $550 billion across corporate and real estate credit—up 13% year over year—inflows were $33 billion in the second quarter, or nearly 50% of the firm's total. We are seeing continued strong engagement with institutions across our non-investment grade strategies despite the market noise earlier in the year. At the same time, we are benefiting significantly from the massive secular shift underway toward investment-grade private credit. A new direct-to-customer model has taken hold, which brings lenders right up to borrowers, leading to a better experience for both. In the insurance channel specifically, this model is resonating, as is our open architecture approach. Our insurance AUM reached $290 billion in the second quarter, up 15% year over year, representing the largest third-party focused platform in our sector. We announced a new partnership with Japan's largest life insurer, Nippon Life, in which we will deploy approximately $10 billion in private credit over the next several years and also invest in their domestic real estate portfolio. This builds on our existing relationship with Nippon Life through their investments in CoreBridge and Resolution Life, both of which are major partners of ours. In total, we now have 40 clients in our dedicated insurance solutions area, a number which has nearly doubled in the past two years, and we continue to add more on a global basis. We are building something highly differentiated in this channel and have established a massive scale advantage with the combined strength of 40 of the leading insurers in the world, all without taking on insurance liabilities. Moving to private wealth, performance and brand are the ultimate determinants of success in the wealth channel, and Blackstone is a leader in both. Despite the geopolitical turbulence and muted flows in Credit, our AUM in the channel grew 16% year over year in the second quarter to a record $324 billion. Total sales were $8.6 billion in the quarter, with a slower pace in April and May when sentiment related to the Iran conflict was most negative but a strong recovery in June. This momentum has continued so far in Q3. BXP led the way again in the second quarter with $2.4 billion raised, bringing its NAV to over $25 billion in only 10 quarters. June represented the best month of sales since launch at $1.2 billion. BXP has achieved a remarkable 20% net annualized return since inception for its largest share class, including approximately 8% net in the second quarter, powered by its outstanding portfolio positioning. Our infrastructure vehicle for private wealth, BX Infra, raised approximately $900 million in the second quarter, bringing its NAV to $6 billion in just six quarters, underpinned by a 16% annualized net return in its largest share class. BREIT raised $1.2 billion in the second quarter while repurchases continued to decline sharply, falling 42% year over year and down 33% sequentially from Q1, resulting in the best regular way net flows in nearly four years. The vehicle has generated a 9.4% net return for its largest share class since inception 9.5 years ago, approximately 40% above the public REIT index, including 10.3% net for the last 12 months. BREIT's investment in data centers, which now comprise 27% of the portfolio, has been particularly helpful. NAV increased 7% year-over-year to $57 billion. BREIT is clearly back in growth mode. Finally, BCREDG's gross sales were $1 billion in the second quarter. Repurchase requests remain elevated and exceeded the 5% limit, with approximately 50% fulfilled resulting in net outflows of $1.2 billion. The semi-liquid structure of BCRED and our private wealth perpetuals is designed to provide greater liquidity than traditional drawdown funds while protecting performance. We have been here before with BREIT, and while it is early in the third quarter, redemption requests are down materially. Looking forward, our performance supports innovation. Yesterday, the first two funds in our alliance with Wellington and Vanguard officially launched: WVB All Markets and WVB Blackstone All Privates, with inflows expected to start later this quarter. These funds provide individuals with simplified access to three world-class asset management firms, including the full breadth of the Blackstone platform. Together, the alliance is actively exploring additional strategies including for the retirement market. Later this summer, the firm expects to accept our first subscriptions to BXHF, our new perpetual multi-strategy hedge fund product targeting more liquid exposures. Adoption of private markets in the wealth channel remains on a structurally positive trajectory and Blackstone continues to lead the way. Finally, turning to the IPO market, which has strengthened considerably: at the start of the year, we predicted that 2026 would be the year of the IPO, and that is what is playing out. In the first six months of the year, U.S. IPO activity increased six-fold compared to the same time last year, while global issuance rose more than 3.5-fold. Against this backdrop, Blackstone has executed three IPOs since May: a mobile advertising business in the U.S., an office REIT in India, and the firm's stabilized data center REIT BXDC. This week, we launched another significant IPO in the U.S. In total, we have eight IPOs on file globally from a diverse range of sectors and geographies. While geopolitical developments will continue to impact markets, we are optimistic on the direction of travel with our IPO activity providing the foundation for greater realizations over time. In closing, our highly diversified capital-light, performance-driven model continues to deliver. I am extremely confident about the future. With that, I will turn things over to Michael S. Chae.
Thanks, John, and good morning, everyone. The firm's continued evolution and the expanding scope of our activity have fundamentally transformed our earnings power, both in terms of the magnitude as well as the breadth of sources of earnings. In the second quarter, we again delivered over 20% year over year growth across total revenues, fee revenues, fee related earnings, net realizations, and distributable earnings, following a similar trajectory for these metrics in Q1. Meanwhile, our funds reported strong overall investment performance against a backdrop of significant geopolitical uncertainty, highlighted by notable strength in our AI related portfolio, as you have heard this morning. Starting with results, distributable earnings increased 26% year over year to $2 billion in the second quarter, or $1.52 per share, underpinned by one of the three best quarters of fee related earnings in our history along with robust growth in net realizations. First, with respect to FRE, which increased 22% year over year to $1.8 billion or $1.43 per share. Fee revenues also rose 22% to $3 billion, with double-digit year over year growth in all four of our segments: 32% growth in Private Equity, 21% in Real Estate, 18% in BXMA, and 11% in Credit. In terms of the underlying drivers of fee revenue growth, transaction and advisory fees for the firm nearly doubled in the second quarter to a record $321 million and were up 52% sequentially from Q1. The expansion of our platform and overall levels of financing and investment activity has led to a material step up in these revenues, representing an important and underappreciated engine of fee revenue generation. Further, fee related performance revenues increased 68% year over year to $793 million in the second quarter, powered by the scaling and strong overall investment performance of our platform perpetual strategies. These revenues increased nearly threefold for both BXP and BREIT, alongside contributions from BCRED, VIP, BX Infra, and other vehicles. Pay expansion fees for the firm grew at a mid-single-digit rate year over year, in line with the trajectory we previously outlined. We saw strong double-digit growth in base fees in Private Equity and BXMA, some deceleration in year over year growth in Credit related to the BDC area, and a decline in Real Estate due to harvesting activity in the BREP opportunistic funds and headwinds in our institutional core plus business, as I mentioned last quarter. We continue to expect similar year over year base management fee growth for the firm in the third quarter as in Q2, with a return to double-digit growth in base management fees in 2027. Turning to net realizations, we reported $414 million in the second quarter, up 27% year over year. Gross performance revenues grew 32% year over year to $731 million, underpinned by a 20% increase in Private Equity, while real estate performance revenues rose nearly five-fold to the highest level in four years. We noted last quarter that the geopolitical volatility had pushed out exit pipelines and slowed realization activity in the near term. Even so, we were able to execute a number of dispositions across the firm including the data center sale that Stephen discussed, along with multiple realizations in the energy portfolio. These included a manufacturer of engineered structures for electric transmission, a natural gas pipeline, a Europe-based environmental services firm, and the public stock of an energy solutions company. Overall, the firm's embedded realization potential—the net accrued performance revenue on our balance sheet, our store of value—now stands at $7.5 billion or $6 per share, the highest level in four years, up 13% year over year and up 7% sequentially from Q1. While we do expect a sequential deceleration in net realizations in the third quarter, we anticipate a robust fourth quarter and into 2027. That brings me to investment performance, which, as Stephen mentioned, was highlighted by outstanding returns in numerous strategies driven in significant part by our AI related portfolio. This was illustrated in our returns in infrastructure, our dedicated energy strategies, BCEP, BREIT, and the most recent vintages of our corporate private equity and real estate opportunistic funds, which have favorable exposure to this area. BXMA's strong overall returns also benefited from positioning in the AI area. For the firm overall, AI related holdings comprised nine of the ten largest markups in the second quarter. Our dedicated infrastructure platform appreciated 7.2% in the quarter and an exceptional 29% for the last 12 months. Our U.S. and Europe-focused data center business, QTS, was once again the largest single driver of appreciation in infrastructure, real estate, and for the firm overall in Q2, driven by continued extraordinary leasing momentum. We also saw significant gains across other data center investments in the U.S. and Asia. The corporate private equity funds appreciated 3.7% in the second quarter and 14% for the last 12 months. Our holdings in power and electrification, both private and public, along with strong performance in Asia, were the largest drivers of Q2 returns. The most recent vintages of our corporate private equity strategies were the best performing, powered by these areas, including appreciation of 6.1% in the quarter for our latest global flagship, 8.8% for Asia, and 23.6% for our most recent fully invested energy fund. Overall, our private equity operating companies continue to report healthy underlying fundamentals, including revenue growth of 11% year over year. BXMA reported a 5.8% gross return for the absolute return composite in the second quarter and over 15% for the LTM period. BXMA has delivered positive composite returns in each of the last 25 quarters as John noted, and in 38 of the past 39 months, a remarkable achievement notwithstanding the significant volatility in public markets over this period. Strong investment performance across the BXMA platform in Q2 led to the segment's highest dollar fund appreciation in history and is supporting robust inflows and continued double-digit year over year growth. Credit was up 1% in the second quarter and 7% for the last 12 months, reflecting stable underlying credit performance across the vast majority of our holdings, with strong current income providing ballast to returns. Here too, our energy funds outperformed with our most recent BGreen III reporting a 4.5% gross return in the quarter. Finally, in real estate, overall values appreciated modestly in the second quarter led by strength in data centers, partly offset by declines in 80% of the global equity portfolio. In logistics, our largest exposure to real estate, we are seeing U.S. leasing activity meaningfully reaccelerate. For data centers, it is hard to overstate their importance and impact. The most recent vintages of our BREP global and Asia strategies appreciated 3.7% and 7.3% in the second quarter, respectively, along with our BPP U.S. institutional core plus vehicle, and of course, BREIT, benefiting significantly from their growing exposure to data centers. So overall, AI is helping to drive investment performance across the firm, particularly in the latest vintages of our funds. In closing, we are in a time of massive demand for capital to fuel historic growth in the most critical areas, and private markets are the solution. For Blackstone, the breadth, scale, and reach of the business we built over four decades have put us in a unique position to be the leader in providing these solutions. Thank you for joining today's call, and we would like to open it up now for questions.
Questions and answers
Thank you. We ask you limit yourself to one question to allow as many callers to join the queue as possible. We will take our first question from Glenn Schorr with Evercore.
Hi, thanks so much. Maybe we will pick up where you just left off, Michael. I respect all the 20-plus percent growth numbers that you all ran through. Got a lot of capital raising, ton of dry powder, and all the seed planting. So the question on base management fees: I heard you on third quarter, but let's just go out to next year, where we and the rest of the world is expecting more of a double-digit pickup. Could you possibly talk through some of the building blocks and the pieces that get us there? If that happens, is it deployment, the fee holiday roll-offs, credit stabilizing, things like that? That would be helpful. Appreciate it.
Sure, Glenn. Thanks. And as you heard from my remarks, we have that expectation too—about double-digit growth next year. We feel very good about the foundation being put in place. In terms of the building blocks you mentioned, there are a number of fundamental and very positive drivers that support our view and really are about the embedded growth we see going into next year. So first, the full year benefit of the private equity segment drawdowns that we will activate—we have activated or will activate this year. So that is our BCEP X fund, our Asia III fund in BCP, our energy transition fund. Second, I would say the seasoning and expansion of perpetual strategies, particularly across our flagship private wealth vehicles and our infrastructure platform. As you know, as John said, our BXP NAV is $25 billion; that is up two times year over year. Our infrastructure business is up 40% year over year. BX Infra, new product introductions—so that is a very positive picture. I would add to that BXMA, a similarly NAV-based business: AUM is up 21% and performance and net flow activity remained exceptionally strong. In Credit, we see underlying positive growth in insurance across the institutional insurance channels, and we look to an eventual stabilization in retail flows. AUM for the whole business is up 15% year over year. Inflows are healthy. The investment-grade private credit portion of that business is up in the 20% AUM area year over year. The insurance business AUM is up 15% year over year. Importantly, new reference dry powder in our credit business: we ended the quarter with $84 billion of dry powder, which as you know largely earns fees as it is invested. That dry powder balance is over double where it was at the beginning of 2024 and almost a third larger than just the beginning of this year. So that is really this coiled spring as it relates to expanding management fee growth. Finally, importantly, we see stabilization in the real estate base fee trends next year. If you take those pieces together, we think we are well positioned for a very strong 2027. And then I would just add finally, in the meantime, beyond base management fees, the firm today really benefits from a significantly broader fee-generating platform. As the results in this quarter demonstrated, that includes the growing scale and contribution from transaction fees and fee related performance revenue. In the first half of the year, total fee revenues were up 21%. So we think that is a very positive picture about 2027. In the meantime, the overall fee revenue base is showing strong momentum. Thanks so much for that.
We will take our next question from Alexander Blostein with Goldman Sachs.
Hi, good morning. Thank you for taking the question as well. I would love to double click on what you guys are seeing in the wealth channel. John, a couple of positive remarks—I think you mentioned as far as the third quarter goes. So maybe what you are hearing on the ground on BCRED performance year to date; I think it is a little challenged still, but it sounds like you have seen some improvement in redemption. I would love to get into that a little more. And then ultimately, also on the new products that you launched with Wellington and Vanguard, I'd love to scale your perspective on how you are planning to scale these products and flow through the management fees ultimately for Blackstone from them.
Thanks, Alexander. The wealth platform is in really terrific shape. AUM, as we mentioned, is up 16% year on year to $324 billion. We saw a recovery in flows certainly towards the end of the quarter, which we talked about. In the heart of the credit and the war, we did see a little bit of a deceleration, and we are now back to levels we were at in the first quarter on a monthly basis. The mix has changed, obviously, with a lot of strength, as you heard, in BX Infra and BREIT has much more momentum, but more muted inflows on BCRED, which given the volume of noise is to us not a surprise. I would reaffirm what I said: it is early in the quarter, but the redemptions in BCRED are down materially, which is positive. So I think you have got to look at this overall platform holistically: the strength of our brand, the strength of our distribution team, our global reach, the performance we have provided, the confidence we have built with financial advisers and clients. This is a very special thing that has been built and we think the potential for it to grow is quite enormous. With those initial four flagships, but then with new product launches—the hedge fund product we talked about—and then to your point, Wellington and Vanguard. These are two amazing firms who have long storied histories and are focused on investment performance, as we are. The idea of creating products that are one-stop shopping, integrated, where you have all the Blackstone privates together or the Blackstone privates along with actives, passives, equity, fixed income, putting that together and making it easier for investors to access these products. There are also different standards in terms of where they sit because of the structures here with Wellington as managers, as opposed to what we have today: a number of our products are limited to qualified purchasers. Here, there is a larger universe of potential buyers and there are folks who want a simpler, easier solution. We are excited. It will take time, like everything, to build these things, but it is a couple more engines we are adding. We offer something that is really unique. Performance is so important. If you look at BREIT relative to real estate products, you look at how BCRED has performed since its inception, you look at BXP and BX Infra over the last couple of years, that is remarkable, which is why we think we have built so much loyalty with the customer. Thank you.
We will take our next question from Michael Cyprys with Morgan Stanley.
Hey, good morning. Thanks for taking the questions. Just want to ask about AI. As AI compute increasingly becomes a scarce economic resource, could we eventually see compute capacity, in your view, emerge as a standalone investable asset class similar to what we see in real estate, infrastructure, or energy? Can you talk about how you are positioning for that? And maybe that dovetails with the new REIT BXDC where you mentioned a massive opportunity to get to a trillion. Maybe you could just unpack some of the building blocks and how you see some of the near-term versus medium-term milestones to make progress and sort of hit that over time. Thank you.
It is a great question, Mike. We definitely see today a global shortage of compute. There is obviously a lot of dollars being invested, but the dollars are not keeping up with the demand and we see that on a lot of fronts today. When we talk to our hyperscaler friends and the large language model companies, they all would want more capacity. As we have energy shortages in places, there is now some community pushback. We obviously have chip shortages today in memory; it is making it harder to keep up with the pace of demand. I do think ultimately what that means is those things that are built and operating are worth more. Data centers are a great example of that. We have seen benefits obviously for the neo clouds, which can deliver compute more real time. I do think what this is going to mean is a market will grow to be very large in the real estate world. We saw this in the mobile tower business; I think we will see this here. I think BXDC has the potential to grow significantly because there are not just data centers that are owned by the developers and investors like us; there is also an enormous amount of data centers on the balance sheets of the big hyperscalers. If they need more capital, I think you will see some of these things sold, and then the energy assets also, I think, become increasingly valuable as well, and the infrastructure around that. We have done a lot of investments in the midstream space—pipelines, LNG—and that becomes more valuable. So I do believe the components of compute, because of the shortage of compute, will increase in value, and we have positioned ourselves particularly in infrastructure where Sean Klimzak and his team have done just a terrific job, but also in Real Estate and our energy transition business. We have a bunch of places where we are exposed to what is happening here. I do think it points to, at least in the near term, a continued shortage and therefore values going up.
And Mike, it is Michael. I would just add that basically almost every business at the firm that we have built over decades is now in position and has acted on this to be a capital solutions provider to this whole ecosystem. So whether it is credit, infrastructure, real estate, energy, private equity, hybrid capital, or BXMA as it relates to more liquid parts of the market, this breadth, diversity, and scale of the business we have built puts us in position to basically have a capital pool that can be a solution for every need in this area, and the needs are massive. You mentioned the single pool of capital; I would just say we can keep innovating around this, around the existing platform of businesses in a really, I think, exciting way. Great. Thank you.
We will take our next question from Craig Siegenthaler with Bank of America.
Hey, good morning everyone. My question is on real estate. And I know this has not happened in more than four years, but public REIT stocks are outperforming the S&P 500 year to date. Very few classes have been able to keep pace with U.S. large caps. Now despite this, private real estate returns in opportunistic drawdowns and core-plus have still lagged publics. So I am wondering, do you have any line of sight into private returns, and also how this could translate into demand for private real estate across your LP base?
Well, Craig, I would start with what is happening on the ground with the fundamentals. There has certainly been a headwind last year with the war in the Middle East and now this year with the war that have kept rates elevated. But underneath the covers, there are a number of positive things happening, which is why I think the public REIT market has moved. You see that at times when the public markets are more forward-looking. What is happening is there has been a sharp reduction in new supply and that is starting to have an impact. The area where it is moving first is in logistics and the warehouse business, which is our biggest asset class. We saw very strong leasing in the first half of the year in our Link Logistics platform in the U.S., which is up 26% in leasing volume, seeing occupancy and rents start to increase, and investors are seeing this. We are now seeing some large scale M&A in the public markets with what looks to be likely a successful takeover of a $25 billion logistics company in the U.K., Segro. I think these are good signs. I think this will be the first asset class that really starts to emerge in Real Estate, and that is good for us over time. We have also seen strength in hotels; last year we saw negative same store RevPAR, this year, nationally in the U.S., it is up 5%, which is a very positive sign. We have leaned in places like San Francisco, again a bit of an AI derivative; we bought three hotels in the last six months. We feel very good about that. Interestingly, in the office market, which has been in a tough spot for a number of years, in a place like New York, vacancies have fallen from 21.5% to 14.5%, which is a very good sign. We are also seeing—the public REIT market is strong but the public debt market, the CMBS market—volumes are up 23%. So I would say near-term headwinds have slowed things down because of rates moving up, but I think once we get past geopolitical events and we see that start to settle down, the underlying strength and fundamentals and investors' desire to invest in hard assets in a world of uncertainty will lead to a private real estate recovery picking up pace. Thanks.
We will take our next question from Bill Katz with TD Cowen.
Great. Thank you very much for taking the question. Maybe just a big picture question to change topics for a second. I was listening to Steven's comments about Blackstone being a cheap way to play the opportunity in AI and infrastructure, and we would agree wholeheartedly. How does that inform your views on capital return from here? Stock is down significantly from its highs, obviously, bouncing a bit today. You have a big payout. Any thoughts of maybe rejiggering the payout rate, stepping in on buyback a little bit versus an overgrowth? Maybe how you are thinking about capital allocation from here? Thank you.
Hey, Bill. Thanks. It is Michael. We have been committed to our capital policy for a long time, which as you know is basically returning 100% over time of our cash earnings back in the form of our dividend, which I think today is at about four times the S&P yield on a yield basis, and then also a more moderate but consistent buyback program—all to add up to that total return of our cash earnings. We think over the long run that is a sound policy. It reflects our business model and the relative capital-light orientation of it. We certainly have scope to look at more opportunistic uses of capital as it relates to the stock, but we try to be consistent and committed to our policy, and that is where we are today on that. Thank you.
We will take our next question from Brian Bedell with Deutsche Bank.
Great. Thanks. Good morning. Maybe just to go back to the really strong momentum in fundraising: it looks like you are now on pace to potentially match or exceed your record year in 2021. So maybe just talk about the confidence on that. I know there is different timing with the drawdown funds. But as you think about it more broadly, thinking about that growth momentum across private wealth, credit, the whole AI and data center theme, and increasing inflows in insurance—are you expecting that fundraising pace even after a potentially really strong year this year to continue to grow into 2027 and longer term beyond?
You know, Brian, it is a good question. It is hard to put your finger on it, but what we can point to is that we have been in a world of pretty high volatility and that speaks to the resilience and breadth of this franchise. We managed to raise very significant amounts of money across all three channels. On the institutional side, we have a number of funds that are exceeding their hard cap in terms of demand. We talked about BXMA which has renewed momentum. Our infrastructure business will continue to grow at a breathtaking pace. It's a bit slower in Real Estate, but remarkably that business, despite its slowness in fundraising, is still producing very strong results. So when we get to the other side on real estate, that gives me a lot of confidence with the firm overall and where fundraising can move to. On the insurance side, we continue to see clients responding: up 15% to $290 billion. Those clients really appreciate the premium return we can deliver over comparably rated investment-grade credit. We are doing large corporate solutions that are so needed in the energy and digital infrastructure spaces, and I think we will continue to gain clients in that area. In wealth, despite the negative headlines, we are up 16% year on year to $324 billion with a range of existing products that have delivered and new products coming online. The strength of the brand we built is recognized globally by investors who trust the firm across multiple channels, enabling us to continue to grow without having to borrow money or utilize capital at scale. We like where we are and we have a lot of confidence on the fundraising outlook over time. A more settled landscape or ending inflation rates coming down would be very helpful for the business. So we have a lot of confidence on the fundraising outlook over time.
We will take our next question from Daniel Fannon with Jefferies.
Thanks. Good morning. Based on the outlook you gave for management fees for the second half and next year, how should we think about margins in that context, particularly as we think about next year given the growth rates that are expected from the management fee side?
Daniel, it is Michael. It is early to comment on margins for next year, but as I said, we are pretty confident about the top line and our ability to manage expenses and deliver over time operating leverage. We are not going to give a specific viewpoint on that other than to reiterate structurally we like our margin position.
We will take our next question from Bart Chersky with RBC Capital Markets.
Great. Thanks for taking the question and good morning everyone. I wanted to dive into transaction fees. Very strong quarter, looked broad based across private equity, real estate, credit. Are there any lumpy items to call out there? And Michael, you talked about this fee stream being underappreciated—maybe unpack that a little bit for us and what we should be expecting going forward. Thanks.
Yes. Stepping back, it's about the scaling of the firm and the broadening of the firm and the surface area for transaction activity, financings, and advisory services that can generate these revenues. That led to this record quarter and a record first half. In recent years this has been underappreciated, but it is coming to the fore now. In terms of lumpiness for the quarter, what has emerged as a new avenue for this area are customized capital solutions—corporate solutions, private investment-grade in the credit insurance area—where we become a trusted solutions provider. There is a substantial opportunity for investment-grade rated corporates where we can generate attractive revenues, and those will have some variability from time to time. But that is a newer strategic area that will continue to grow. So while there will be quarter-to-quarter variability in this revenue stream, we have a considerable pipeline in place for the second half of the year and the underlying baseline continues to grow.
I'd just add to Michael's point: as the asset base grows, there is just more activity around that asset base. Areas like digital infrastructure and energy have more and more capital needs, and it is tied directly to our AUM. You are beginning to see a structural step up in earnings from this area.
We will take our next question from Brennan Hawken with BMO Capital Markets.
Good morning. Thanks for taking my question. Would love to drill down a little bit on realizations. We have been waiting for recovery in realizations for some time, and you added some color about that ramping into 2027. Could you help us contextualize that expectation? Are there any historical periods you would point to as a proxy? And how reliant is it on market conditions which has been part of the trouble with timing this cycle?
I'll comment on the history: in 2008–2009 we had very little in the way of realizations and the engine didn't really ramp back up until around 2013. We have been in a period of several years with some similarities—maybe not as sharp a downturn but a long period of recovery. Short rates have come down and the IPO market has started to reopen. It felt earlier in the year, prior to geopolitical events, that this was going to accelerate; it has been delayed a bit, but ultimately we know where this is heading. We do have confidence as we look toward the end of the year and into 2027 that we will see a pickup.
Broadly, this has been an uneven recovery in realizations. It should continue to strengthen. A few areas with momentum: first, the IPO market has strengthened and we have additional IPOs on file, which provides a foundation for greater realizations over time as companies season. Approximately a third of our corporate private equity receivable balance is publicly traded, and that is growing. Second, within energy transition, the receivable balance has roughly doubled in a year, reflecting the portfolio we built around the AI and power ecosystem; there is active M&A and private sales in that area. Third, BXMA has scheduled year-end crystallizations that are performing well year to date and should be robust. Overall, our net accrued performance revenue is at its highest level in four years, and while timing will vary, we like the position we are in.
We will take our next question from Mike Brown with UBS.
Great. Good morning. Thanks for taking my question. John, I wanted to dive in a little bit more into BCRED. You made comments about withdrawals slowing here and we're in the early stages of Q3. Curious if you think some of these withdrawals will continue to ease as you move into the onshore redemption window, and maybe unpack a little bit about what you are hearing from advisers. What do you think is driving that reduction in withdrawals? Has performance held up quite well, or has the dialogue and education with the adviser channel helped ease redemption pressure? Thank you.
I think a lot of it is the level of noise has come down. Many people were calling for a massive calamity and when that didn't occur, the press and noise calmed, which had previously made clients understandably nervous. They would pick up the newspaper and call their financial adviser and that created a dynamic. We have done a ton of investor outreach calls and meetings with investors and advisers around the world. Some of it is the reality that performance has held up and there have not been widespread credit issues. We've been through this with BREIT in the past and we are in a different place today. We will work through the carryover from unfulfilled redemptions last quarter, but redemption requests are down materially and I feel confident BCRED will continue to be a very strong product for us over time.
We will take our next question from Devin Ryan with Citizens Bank.
Thanks. Good morning. A follow-up on the data center opportunity. The scarcity dynamics seem supportive of the value that is already in the portfolio and what you already own. As you think about deploying the next dollar, do you see prospective returns being as attractive as what is already in the portfolio? How are you thinking about return opportunity going forward with dollars coming in?
It is a very different dynamic than typical investment cycles where high returns attract speculative supply. In this case, building compute is difficult: chips are constrained, power is constrained, entitlement is constrained, so supply is not keeping pace. These are very customized, large projects, so you don't get the kind of speculative overbuild you see in simpler asset classes. Today we have 15 gigawatts of entitled sites globally that can support roughly $200 billion of data centers. That entitlement and access to power is the scarce commodity and that is why pricing for building these things and the returns has not meaningfully softened. We have expanded capabilities including investments in neo clouds around the globe. At the end of the day there is a global shortage of compute, and if you can deliver that you can earn attractive returns on capital.
We will take our next question from Steven Chubak with Wolfe Research.
Hi, good morning, and thanks for taking my question. I was hoping to drill down into the insurance opportunity. I wanted an update on what you are seeing in terms of flow momentum and new partnerships. You are seeing really strong growth this year in the mid-teens range—wanted to gauge whether that is expected to be sustained or whether you envisage a potential acceleration over the next couple of years?
As a baseline, what we are seeing in insurers—starting in the life annuity space and spreading—is a recognition that private investment-grade credit can deliver higher returns at the same or higher ratings levels, which is attractive. These clients can absorb a portion of their portfolio into these strategies. We typically start with SMAs in one area and then expand. The rate of growth will be a function of continued platform growth and new strategic partnerships, which can create step-function increases. Clients like what is happening here and need these tools to compete. Scale matters because these clients need large allocations and the ability to write large checks. Today it is really us and a few other firms with different models competing in this arena. We expect momentum to continue and grow, though exact growth rates are hard to forecast.
We will take our next question from Kenneth Worthington with JPMorgan.
Hi, good morning. Maybe following up on that: you announced a strategic partnership with Nippon Life and you have 40 insurance partnerships. As you look to these existing partnerships, what is the opportunity to take them beyond the initial scope of the agreement? Can you build on them, and does this play out formally or informally over time?
Good question. The propensity to do more is high. We typically start with a base—call it $500 million—and many partnerships have grown into multiple billions as clients get comfortable with the risk-return and our approach. Nippon Life is a great example: we've built the relationship over five-plus years and they see the way we operate across asset classes and trusts our underwriting approach. As we deliver, clients often expand the scope of the relationship, and over time they may become buyers of our drawdown funds as well. The path is to serve them well and expand the products they use with us.
We will take our next question from Benjamin Budish with Barclays Capital.
Hi, good morning, and thanks for taking the question. You addressed this a bit earlier around realizations, but could you unpack what you are seeing in sponsor and strategic-backed M&A? It feels like the IPO market has been the area you have been bullish on, but sponsor-backed M&A feels slower to come back, especially on the sponsor side. There are implications for direct lending and the credit segment. Could you talk about the near-term outlook for middle-market M&A?
It is a tale of three buckets: first, companies in the AI area—electrical equipment, utility services, energy businesses, data centers—the bids are strong in both IPO and M&A markets and pricing is good. Second, AI-unaffected businesses like fast food chains and certain medical suppliers: bids are pretty strong and there's liquidity. Third, the white-collar services and enterprise software area: even if businesses are performing well, there is a high quotient of uncertainty, which makes buyers more cautious. That part of the market has slowed down; multiples have come down and expectations will have to adjust. Some businesses will survive and thrive and potentially be rerated, but this is the area where DPI will be lower in the near term.
We will take our next question from Arnaud Giblat with BNP Paribas.
Thank you. Good morning. My question is a follow-up on value creation in private equity and infrastructure. I assume mix was strong in Q2; could you unpack value creation for us and key drivers?
The value creation story is obviously about making portfolio companies as AI-forward as possible. We announced Ode, a company with Anthropic, to accelerate deployment at our companies and ultimately service other companies as well—how we can transform businesses. In software, AI can reduce complexity and speed up processes. We own Energy Exemplar, which helps utilities simulate and manage electricity flows; what used to take a week can now take hours, making it far more usable for customers. We're applying AI to customer service at consumer businesses, innovating products at our portfolio companies like Chamberlain, and creating new digital businesses in many places. We have a strong portfolio operations team led by Rodney Zemmel, who used to run AI at McKinsey, and this is a key focus across our private equity companies.
We will take our final question from Patrick Davitt with Autonomous Research.
John, maybe this was taken out of context, but I saw a headline from a TV interview that said deals from non-AI firms will be muted for a while. Can you unpack that comment and add color on what asset classes or geographies you expect to be most muted?
We should clarify: in the interview I walked through the same three buckets—the AI companies, the AI-unaffected companies where there is still a lot of interest, and then the white-collar world. The latter—professional information services and enterprise software—is where I said there would be less activity because of the uncertainty. That segment is probably 30% to 40% of the overall private equity market. Software for us as a firm is around 6% of our exposures across the firm. That is the area where there will likely be less activity until clarity returns.
That will conclude our question and answer session. At this time, I would like to turn the call back over to Weston Tucker for any additional or closing remarks.
Great. Thank you, everyone, for joining us today, and we look forward to following up after the call.