BLACKSTONE Earningcall Transcript Of Q2 of 2024

Michael S. Chae -- Chief Financial Officer

Thanks, Jon, and good morning, everyone. The firm delivered steady financial results in the
second quarter with positive momentum in fundraising and deployment, as you've heard today. I
will first review results and we'll then discuss investment performance and the outlook. Starting
with results.

The firm's expansive range of growth engines continues to power AUM to new record levels.
Total AUM increased 7% year over year to $1.1 trillion, with inflows of $39 billion in the quarter
and $151 billion over the last 12 months. Fee earning inflows were also $151 billion for the LTM
period, including $53 billion in the second quarter, the highest level in two and a half years, lifting
fee-earning AUM by 11% to $809 billion. We activated the investment periods for our corporate
private equity and PE energy transition flagships in the second quarter, which, along with BXPE
and private wealth, were in fee holidays as of quarter end, representing $27 billion of fee AUM in
aggregate.

Notwithstanding the temporary impact from these fee holidays, management fees increased 5%
year over year to a record $1.8 billion in the second quarter. Notably, Q2 represented the 58th
consecutive quarter of year-over-year growth in base management fees at the firm. Fee-related
earnings were $1.1 billion or $0.91 per share. The comparison of FRE to prior periods was
impacted by a decline in fee-related performance revenues in the real estate segment, including
from BREIT, as its positive year-to-date appreciation came in modestly below the required
hurdle.

These revenues carry favorable margins and their decline impacted the firm's FRE margin in the
second quarter. These factors are partly offset by the steadily growing contribution from our
direct lending business, with fee-related performance revenues in the credit and insurance
segment rising 24% year over year to $168 million. Distributable earnings were $1.3 billion in the
second quarter or $0.96 per share, up 3% year over year. BE was underpinned by the firm's
steady baseline of fee-related earnings with Q2 representing the 11th consecutive quarter of
FRE over $1 billion.

Net realizations were $308 million in the second quarter, up year over year, but still reflective of a
backdrop that is not yet robust as it relates to scale dispositions. That said, we executed the
sales of a number of public and private holdings in the second quarter concentrated in our Asia
private equity business, including a leading healthcare services company in Korea, the IPO and
subsequent sale of stock of one of the largest housing finance platforms in India and the sale of
stock of an India-based technology company. Moving to investment performance. Our funds
generated healthy overall appreciation in the second quarter, led by strength in infrastructure,
private credit and life sciences.

Infrastructure reported 6.3% appreciation in the quarter and 22% over the last 12 months, with
broad gains across digital, transportation and energy infrastructure. Our data center platform
was again the single largest driver of appreciation in our real estate and infrastructure
businesses and for the firm overall in the second quarter. In credit, we reported another
outstanding quarter against a continuing positive backdrop for private debt market
fundamentals. The private credit strategy has generated a gross return of 4.2% in the quarter
and 18% for the LTM period.

The default rate across our 2,000-plus noninvestment-grade credits was less than 40 basis
points over the last 12 months, as Jon noted, with no new defaults in private credit in the
second quarter. Our multi-asset investing platform, BXMA, reported a 2.1% gross return for the
absolute return composite, the 17th consecutive quarter of positive performance, and 12% for
the last 12 months. BXMA has done an extraordinary job delivering resilient all-weather returns
over the past several years through volatile equity markets and the longest and deepest
drawdown in bonds on record. Since the start of 2021, the absolute return composite net of fees
is a cumulative 27% or nearly double the traditional 60-40 portfolio.

The corporate PE funds appreciated 2% in the second quarter and 11% for the LTM period. Our
operating companies overall reported stable mid-single-digit year-over-year revenue growth,
along with continued margin strength. In real estate, values were stable overall in the quarter,
supported by strength in data centers and global logistics. This was offset by declines in our
office portfolio, including life sciences office and certain other factors.

One final highlight on investment performance. Our dedicated life sciences business delivered a
standout second quarter. The funds appreciated 11.9% and a remarkable 33% for the LTM
period after achieving positive milestones for multiple treatments under development, including
for stroke prevention, cardiovascular disease and rare forms of epilepsy in children. The growth
and performance of this business is yet another example of the firm's ability over many years to
innovate and translate megatrends into large-scale businesses for the benefit of our investors.

Turning to the outlook. We're putting in place the foundation for a favorable step-up in earnings
power over time. First, in terms of net realizations. We expect a near-term lag between
improving markets and a pickup in these revenues, as we stated previously.

In the meantime, the firm's underlying performance revenue potential has continued to build,
with performance revenue eligible AUM in the ground reaching a record $531 billion at quarter
end. Meanwhile, net accrued performance revenue on the balance sheet, the firm's store value,
grew sequentially to $6.2 billion or $5.08 per share. As markets heal and liquidity improves, we
are well positioned for a significant acceleration in net realizations over time. In terms of FRE.

We anticipate a material step-up in FRE in the fourth quarter with multiple drivers of note. First,
with respect to management fee holidays. The corporate PE and energy transition flagships will
exit their respective fee holidays in the coming months and will generate full management fees
in Q4. BXP exited its fee holiday this month.

Second, in terms of fee-related performance revenues. Q4 includes a scheduled crystallization
for the comingled BIP infrastructure strategy with respect to three years of significant accrued
gains as well as BXP's first crystallization event with respect to full year 2024 gains. Looking
forward to 2025, we will see the full year benefit of the flagship vehicles that were activated in
2024. We also expect to raise multiple other flagships throughout the course of 2025, including
life sciences, private equity secondaries, private equity Asia and other major strategies.

In addition, we expect the continued expansion of our platform of perpetual strategies, which
has grown by two and a half times in the past three years. And importantly, our credit insurance
business is on a strong positive trajectory with segment FRE increasing nearly 30% year over
year in the second quarter. The dual engines of performance and innovation at Blackstone
continue to drive the firm forward. In closing, the firm is exceptionally well positioned against
today's evolving backdrop with powerful structural tailwinds and multiple engines of growth.

Our long-term capital provides the flexibility and firepower to invest and the patience to sell
assets when the time is right. We are very optimistic about the future of Blackstone. With that,
we thank you for joining the call. I would like to open it up now for questions.

Questions & Answers: