Bloomberg Audio Studios, podcasts, Radio news John This morning, Blackstone posted a twenty five percent jump in distributable earnings and a lot of this was due to retail activity flying into Blackstone more and more. How far does this trend go with more retail investors coming into private funds, especially in the middle of all of this uncertainty.
Well, Shanale is always great to be with you. I would just start with the quarter. It was tremendous for us. First off, we delivered for our investors, that's the most important thing. We had the most fund appreciation in nearly four years. We delivered for shareholders, as you noted, with strong growth and earnings per share. We also saw another
fifty two billion dollars of inflows. And what gets us excited is we've got some cyclical tailwinds here in terms of deal activity picking up as we look into the new year, and then some of these secular growth trends in infrastructure, in private credit and in private wealth, which you noted, and I think that area still has a lot of running room.
It's early days.
If you think about our institutional customers, they are about a third.
Allocated two private assets.
And yet when we look at individual investors, they've got just one two percent allocated to private so it's a big world and we've done a very good job in that area too. The performance of our products has been exceptional, so the market potential are positioning our brand, the breadth of what we do, the products we've offered to track record. We think that sets up for a great outcome over time.
John, how much are you feeling certain and confident about the second half of the year given that there are still uncertainties around the administration's trade deals.
Well, it's interesting.
Ninety days ago we talked about this and we have said consistently to sort of be a little bit patient, let this tariff diplomacy settle. We have seen good progress in terms of deals made with the UK and Japan and Vietnam, and there's sort of a contour of what these deals will look like.
It's obviously not a straight line.
We could have some more bumps here in early August, but I think market participants, businesses are beginning to get a sense that, you know, there will be resolution and that six twelve months from now, tariffs and tariff diplomacy will not be the main thing. And the US economy has shown incredible resilience, and at the same time we have this AI revolution coming towards us, huge investment around that, and that and the productivity gains that should come give us a lot of confidence.
It's never a straight line.
But there are a lot of good things when you sort of look out over the horizon, particularly as we get through some of these terriffics issues.
You mentioned deals a little bit earlier, but I want to note that realizations for the second quarter were just sixty three percent of what they were just four years ago. The deal market industry wide has been slow to come back in terms of private equity exits in particular, how fast and heavy could it come back in the second half of the year and when will they be materially showing more IPOs and more M and A among portfolio companies for Blackstone and others.
Well, Shanala, You're absolutely right.
It has been a tough three years for realizations. They've been running down about two thirds m and A and IPOs generally, that activity capital markets that ties to realizations now for an extended period of time. But as we look forward, we are seeing good signs. The equity markets back at record highs. Debt spreads are back to pre Liberation day levels, the economies hanging in there. We've got a more favorable regulatory environment for in a and there's
a strong desire to do transactions. So when we look at our portfolio, we see an IPO pipeline. That's the biggest since it's been in twenty twenty one. We did an IPO in Europe a couple of weeks ago our first.
And many years.
When we look in our dead area, the number of new credits we're screening is up fifty percent from year end. All of that is positive, but I would caution that it takes a bit of time. So getting an IPO done, of bringing a company out for sale, that activity is definitely going to pick up.
As we move towards the end of the year.
You're going to see exit activity, but that itself, it's like bringing plane out to the runway.
We'll take a bit of time, but the.
Path of travel here looks good, and I do think we'll see a step function increase in transaction activity in the capital markets in the second half.
I realize you're probably hesitant to talk about particular deals, but you are sitting on what was supposed to be one of the year's biggest IPOs and others of Medline, How long would it take to get a company like that back to market? What would you need to see before you had the ability to bring that to an IPO.
Well, we're never going to talk about specific companies, but Medline is a terrific business, and we own a number of other terrific businesses, and there are often considerations to individual businesses in terms of operational things, transactions, other reasons why you make decisions.
But it's also, as we've talked about, a function.
Of the market backdrop, and as the equity market stay healthy, as the IPO market grows, it's a little bit of a magnet pulling things in. So to me, on some of these great companies we own, it's really a question of when, not if, and when we think it's the right time, we'll do it. Market conditions getting better is obviously very helpful for our business.
Now, I want to read you a quote from Oppenheimer off the heels of your results this morning. They said blacks Zone is deploying more in real estate than it is realizing, indicating some bullishness on its part as it puts more money to work than it's taking off the table. Do you agree with that categorization? Can you give any color around how bullish you might be?
I would agree with that characterization.
I guess what I'd say is real estate has also been through a tough patch here now for three and a half years. It was a combination of COVID in the office market and then just the rising cost of capital. Interest rates went up a bunch, and so multiples came down.
In real estate, cap rates went up.
But we're beginning to see some promising signs as we look forward. We're seeing new supply come down pretty sharply, and that takes a bit of time because of the lag between construction going down and new deliveries. That's going to start to show up in the fundamentals as we head towards the end of the year into next and cost of capitals coming down, borrowing costs, spreads, base rates.
That's helpful.
And we're seeing the early signs of transaction activity starting to accelerate, particularly amongst smaller assets. The CMBs markets up something like forty percent year to date, and so real estate's a cyclical business. Apartment demand, logistic demand, These things are not going away, but you have to work through this cycle.
We're at that point.
We're getting closer, I think, to this tipping point where the market sort of bottomed eighteen months ago. We talked about that then, we said it wouldn't be a v shape recovery.
That's what's happened.
But when we look out over the horizon, things certainly look better for real estate, and of course, the way we react to that is by trying to deploy capital ahead of that recovery.
What you're speaking to is an easing of conditions before we've even seen successive rate cuts this year from the federal reserves. Obviously, the President has been very vocal for his desire to see much more aggressive cuts than the market is pricing in. Do you worry that cuts subsequent cuts could spur another bout of inflation at this point.
Well, I think the Fed has done a very effective job getting inflation down. They were a little late, as we know, originally to raise rates, but then moved quickly.
And what we do is look at our proprietary data.
We have two hundred and fifty companies and thirteen thousand pieces of real estate, and consistently for the last couple of years. Others have been talking about sticky inflation. We've just been looking at the proprietary data we have and it continues to show inflation heading lower. Shelter costs, which are the biggest component of CPI, are running well below the government's three point eight percent, and so we think
that'll come down. Energy costs obviously coming down, and when we survey our companies about the labor market, they're saying it's the easiest to hire that it's been since COVID. Wage growth is now down back around three percent. So I think the Fed's going to have a lot of good data. We could see an uptick in goods inflation given what's happening in policy, but in aggregate I think inflation continues to drift down. As a result, I think
the FED has the room to cut rates. So I don't think given where inflation is, that's going to reignite about of inflation, and so I think that will happen gradually. Given the tariffs, given low unemployment, the FED is being patient, but I think the facts will give them the room to cut rates, and that again should be helpful to the economy.
It should be helpful to markets.
With all the rhetoric, the push pull between the President and the Federal Reserve that we've seen on and again, off again threats to even let the FED chair go. Do you worry about FED independence from where you're sitting.
Well, in the last couple of weeks, I think we've heard from both the President and the Treasury Secretary that they expect the FED chairman to continue to the end of his term. I think the FED will continue to be independent p and we'll have a choice to make a replacement here. And I think this system has worked well over time. I think it continue to work well. There's a board of governors as.
Well, so I think the system works.
And ultimately there have been friction between the administration and the Federal Reserve over time. This isn't the first time, but I have a lot of confidence, just like I do in the entire Madisonian system in the US, and ultimately I think the FED will make the right calls based on the data.
John, what do you think of this move that we're seeing in terms of more CAPEX spending as well? I want to shift gears and talk about data centers because you did see Alphabet report overnight coming in with a bigger CAPEX plan than what Wall Street was expecting. You about a week ago were in Pennsylvania for a large summit that the President himself attended, as well as, of course Senator David McCormick, who has been pushing more investment into the state. At what point does this become an
issue where investors stop rewarding CAPEC spending. You are already seeing a little bit of weakness in Alphabet shares on the heels of that announcement. Do you think that investors are going to ask for question at some point?
Well, investors will ultimately look at the returns.
On the invested capital.
And the companies, the hyperscalers, the big tech companies are spending an enormous amount, but it's because they believe that there is a huge prize here at the end, and to date their numbers have been really strong.
They continue to deliver real earnings growth.
I look through some of the Google summaries and what was powerful is how much growth in agents in AI. They're seeing uptick and usage as a result of AI. And I think as long as these companies continue to see their revenue and earnings grow, they're going to continue to invest, and so I think this is a critically important part of this AI revolution. Yes, we need these large language models like a Gemini or an Open AI. We need the chips that the videos of the world create.
But we need this physical infrastructure. We need the data centers where we've been the biggest investor in the world. We need the energy where we're also been a huge investor in generation and transmission and utilities. Both of these things in the physical world are hugely important. Ultimately, it's going to be about the prize, but I think it's
pretty substantial. Bringing super intelligence at scale to the world is going to lead to a huge shift in productivity, and therefore I think the investment makes sense.
Now.
There will be, as often there is companies who lose out investments that don't work out, But in aggregate, this movement towards AI, the movement towards greater efficiency. What's going to happen with autonomous vehicles with robots. I still think we're in the early stage. And six months ago when everyone was talking about deep seek and was the Capex boom coming to an end, we were pretty consistent in our view then that that wasn't the case. We continue to feel that way today.
So, and I should clarify for Alphabet itself, the initial reaction was negative. It later turned around, so clearly investors still making up their minds on how to assess out what all of the spending means. Last question for you, is there something that investors are not seeing about the move into data centers and more spending in AI that you would point to would be the biggest payoff in the next twelve to eighteen months.
You know, I think that in the physical world, it's just the demand. You mentioned this conference we were at at Pittsburgh that Dave McCormick hosted. It was a terrific event. It was bipartisan in nature with Governor Shapiro there as well. Just the amount of capital that's needed I think is really really important. I think that investment spend will continue.
It a pay that is quite significant. And then I think on the payoff side, it's what's going to happen to make consumer lives better, make companies more efficient, the coding, the customer engagement, the content creation.
I think that is really going to be.
Transformative to business to potential earnings. And again, as we get through this tariff diplomacy. I think the world's going to shift to focusing on AI and its impact and the investment that needs to happen to make it a reality.
And I think for investors globally that's exciting.
John, thank you so very much. I know you have a conference call to head off too. We appreciate your time. Blackstone shares now up more than three point five percent pre market after those results.
Appreciate it.