Real Estate Outlook
Q: Where are we in the real estate investing cycle?
A: Jonathan Gray noted that real estate has faced two big headwinds: the office sector's challenges and rising interest rates. He believes these issues peaked in October and have now worked through the market. Gray sees this period as a time for "seed planting," comparing it to the post-global financial crisis period when Blackstone deployed capital into dislocated markets. With significant dry powder, including a $30 billion global fund, he expressed confidence in deploying capital and anticipates a more active year ahead.

Impact of Interest Rates
Q: How do higher-for-longer interest rates affect investment activity?
A: Gray stated that prolonged higher rates extend the investment window for Blackstone's $191 billion of dry powder. While rate hikes can slow realizations, they allow Blackstone to acquire assets at more favorable pricing. He emphasized that market conditions feel healthier than six months ago and that the firm remains forward-leaning in capital deployment.

BXPE Growth Potential
Q: What's the vision for BXPE's size and inflows?
A: Gray highlighted that BXPE's broad platform enables significant scaling potential. The platform spans various asset classes, including private equity, tactical opportunities, life sciences, and infrastructure. He believes BXPE can grow much larger than its current $2.7 billion in inflows, potentially matching or exceeding the scale of products like BREIT and BCRED.

Private Credit Standards
Q: Are credit underwriting standards becoming lax amid competition?
A: Gray assured that Blackstone is not seeing signs of excess in private credit. He noted that the average loan-to-value ratio in their direct lending portfolio was 44% in the first quarter, reflecting disciplined underwriting. Despite tightening spreads, the risk-return profile remains compelling, with unleveraged yields around 11.5%.

BPP Returns and Fees
Q: How can BPP returns recover and performance fees rebuild?
A: Gray acknowledged that returns in some BPP funds have dipped below hurdle rates. He attributed this to market sentiments and asset quality but expressed confidence that commercial real estate will recover over time. The firm anticipates that as the market improves, unrealized performance fees will resume, highlighting the long-term potential embedded in Blackstone's assets.

Bank Partnerships and SRTs
Q: Are synthetic risk transfers (SRTs) increasing risk like in 2008?
A: Gray explained that Blackstone is active in SRTs, mainly partnering with banks for capital relief transactions. They focus on areas like subscription lines, which have had negligible defaults historically. Gray emphasized that Blackstone conducts thorough due diligence on underlying credits and views these partnerships as beneficial for both banks and investors.

Infrastructure Business Growth
Q: How can infrastructure growth be accelerated?
A: Gray highlighted that Blackstone's infrastructure business, less than six years old, has reached $44 billion AUM with 15% net returns since inception. The firm focuses on transportation infrastructure, energy transition, and digital infrastructure. Gray sees opportunities for geographic expansion into Europe and Asia and expects the business to grow into a "triple-digit AUM" area.

Margin Outlook
Q: What is the outlook for operating margins this year?
A: Michael Chae reiterated expectations of margin stability for the year. He noted that first-quarter margins were consistent with the previous year and that the firm actively manages its cost structure. Over the long term, Blackstone anticipates operating leverage and potential margin expansion.

Deployment in Credit and Real Estate
Q: Will deployment levels in credit and real estate rebound to prior highs?
A: Gray indicated that while it's hard to predict exact figures, there is directional momentum in both sectors. In real estate, he sees more opportunities, especially in Europe, due to negative sentiment despite solid fundamentals. In private credit, pipelines have accelerated, particularly in investment-grade and asset-backed areas.

Global Wealth Management Expansion
Q: How is the global wealth management business developing amid competition?
A: Gray stated that demand is broad-based, with strong relationships in the U.S. and growing interest internationally, including in Japan, Europe, and Canada. He emphasized Blackstone's long-standing presence, strong performance, and powerful brand as differentiators in the competitive landscape.

AI Initiatives
Q: How is Blackstone leveraging AI across its portfolios?
A: Gray emphasized that AI is hugely important and that Blackstone established its data science team in 2015, now with over 50 people. The firm has focused on predictive AI and is exploring generative AI applications. Additionally, Blackstone invests heavily in AI infrastructure, owning and building data centers worth $50 billion with another $50 billion in the pipeline.

BREIT Rate Hedge Impact
Q: What was the impact of the rate hedge on BREIT's performance?
A: Michael Chae reported that the rate hedge contributed approximately 1 point of the 1.8% net performance for BREIT in the first quarter.

Compensation Ratios
Q: Why was the fee-related performance comp ratio lower this quarter?
A: Chae explained that compensation is managed holistically and that variability can occur over time. He noted that equity-based compensation grew by 19% year-over-year, reflecting stable grant levels and a trend toward lower growth rates in this expense category.

Regulatory Focus on Illiquid ABS
Q: Are regulatory concerns on illiquid ABS affecting insurance partnerships?
A: Gray acknowledged discussions around regulatory focus but stated that Blackstone primarily engages in direct, investment-grade private assets with risk profiles similar to traditional insurance investments. He believes these activities are beneficial for policyholders and expects constructive dialogue with regulators.