Blackstone Inc. (BX) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Mike Cyprys, Morgan Stanley's Brokers and Asset Managers Analyst. Before we get started, I've been asked to direct your attention to some important disclosures on the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions around that, please reach out to your Morgan Stanley sales representative. So with that out of the way, welcome to our keynote fireside chat with Blackstone at the Morgan Stanley Financials Conference. I'm pleased to have with us today, Jon Gray, Blackstone's President and Chief Operating Officer. Jon has been with the firm for 28 years and is currently on the Board of the Directors and the Management Committee and was previously Head of Global Real Estate. Blackstone, as many of you know, is a diversified alternative asset manager with nearly $540 billion of investor capital under management across 4 main businesses: real estate, private equity, credit and hedge fund solutions. Nearly a year ago, Blackstone converted from a partnership structure to a corporation and has since been added to a number of indices. Jon, welcome. Thanks for joining us this afternoon.

Mike, thanks for having me. Hello to everyone on the call.

Great. So I'll kick off the discussion, Jon here, and we'll leave some time towards the end for questions that investors can submit on the webcast on the web portal here. So Jon much has changed since -- in the world here since you last joined us a year ago. So thanks again for coming back. How is Blackstone as a firm adapting to this unprecedented environment today with arguably most of your employees working from home? And what would you say are your priorities today as you manage the business?

Yes. Well, it is definitely a very different world than you and I sat in a year ago. In terms of priorities, the first is the safety and well-being of our employees. We're a people-driven business, and that, of course, is the #1 thing, to make sure they're in a good place. And obviously, given the pandemic, there have been significant challenges. And now more recently, following the killing of George Floyd, social unrest. And so for us, making sure we're connected to our teams, they're safe, that we're reaching out, open communication, really important. And we spend a lot of time on that. And I will say that Zoom has made it a lot easier for us to manage a business on a remote basis. It would have been much more difficult without that technology. In terms of other priorities, I'd say the next would be protecting and preserving our existing investments that are in the ground. We talked about on our earnings call recently the importance of staying power and firepower. And with existing investments, what matters is, you have the ability if you own a good company or physical assets that you have the staying power to get to the other side during a crisis. And we saw this most vividly during '08 and '09 with investments like Hilton Worldwide, where at a moment in time, things looked pretty grim, but ultimately, it became a very successful investment. And so what's good about our business model is we've got that staying power. We've got capital, the majority -- vast majority of which has an average term of 12-plus years. So we're not forced sellers, we're very focused on debt maturities of our investments. We talked about on our earnings call, just 3.5% of our debt coming due in 2020 and '21. And we also talked about having $30 billion of reserves against -- in older funds to deploy to protect existing investments. So a lot of focus on that. And how we can take advantage, frankly, going forward with some of our portfolio companies of this environment. And then, of course, on the firepower front, we're pretty uniquely positioned with a $152 billion of dry powder, which enables us to deploy capital into what it had been. And I think there will be significant opportunities, but a pretty dislocated market. So during the March and early April period, we talked about deploying $11 billion into liquid securities, mostly public equities but also discounted debt in places like MLPs and REITs, which fortunately have rallied pretty significantly since the bottom. So I would say people first, then obviously existing investments, and then, of course, as an investment firm, thinking of how we can take advantage of opportunities. And so it's been very busy despite the fact that we're physically not in the office today.

Blackstone is known for its strong corporate culture. How do you think about -- how do you preserve that unique culture, would you say, in connectivity in today's environment, where many of your employees are working from home and arguably, it's harder to hire and train people in this environment. How are you approaching that?

Yes. That is a big challenge. And our firm is all about having a great culture and people who stay at the firm a long time, as you pointed out, I've been there a long time, many of the people running business units at Blackstone started in their early 20s. And a lot of that has to do with a very positive culture of people, who are striving for excellence, who care a lot, who are nice to one another and share a set of values. And that's harder to maintain. So we've expanded our Monday morning calls, now where we do a kickoff at 8:30 in the morning on Monday, with more than 2,000 professionals around the globe and talk about what we're seeing, talk about what's happening in the world. I think that's important. We do all sorts of things, virtual, happy hours, all sorts of regular calls to try to have the best cadence possible. I did a call last week with new employees who have joined since we've been in this remote world with an effort to keep people connected. I would give us high marks for striving in this area, but I would say it's hard. And it's part of the reason I would love to get back to the office when we can do it safely. There's an organic, creative energy that comes by people being together. But obviously, we have to balance that against safety considerations, not only within the office, but around mass transit in places like New York and London. So I think we'll get through this. There's a lot of history of people together. And ultimately, we are going to get back to the office. And I think we'll end up adopting some of the things that will make us a better firm going forward.

Maybe diving in a bit more on that point around what you're seeing around what's happening in the world. You have over 250 portfolio companies, thousands of real estate properties around the globe. So through that lens, curious what you're seeing in terms of how the global economy is reopening here? And what's your take on the U.S. and global economy and the macro outlook?

Yes. So we're clearly past the tough phase when the global economy was shut down. And really, the only businesses that were thriving were in the sort of essentials space, food and pharmaceuticals or the digital world. What we're seeing now on the ground is Asia is ahead of the U.S. and Europe, certainly. Much of China, South Korea, now Japan, Singapore, Hong Kong are reopening or have reopened. We own a mall -- large mall in South Korea, where sales are actually up year-on-year. Most of our office buildings we own are full with tenants again. You're seeing positive signs in that part of the world. U.S., as everybody on the call knows, has begun its reopening process. And I would say the signs have been encouraging. We own the Cosmopolitan in Las Vegas. And we've seen demand stronger than we would have expected. We've seen things like housing and mortgage applications stronger than one might have expected. And so I think those are all positive signs when you look out. But I do think you got to temper that by recognizing there was a lot of economic damage from what's occurred. A lot of businesses that have been shut down may not reopen. Capital expenditures have been curtailed. And not all of the economy is going to reopen in the same way. Manufacturing is going to come back before some services, urban areas will come back more slowly than rural and suburban areas. And all of that, I think, leads to a gradual recovery. Markets obviously have moved much ahead of that. But I think on the ground economically, looking at a gradual recovery as we deploy capital, seems like a logical thing to do. So near term, I think the reopening is probably a little better than most people would anticipate. But we still think this is going to take time, and we think that's the appropriate way of thinking about deploying new capital on behalf of our investors.

Great. And just given that backdrop, how do you see the opportunity set here evolving to put capital to work in any particular areas that are most appealing and areas that you're avoiding?

Yes. So initially, as I mentioned, it was in the liquid markets that has mostly dried up as markets have rallied pretty quickly. Obviously, what the Fed and the fiscal authorities have done in the U.S. and Europe have been very helpful there. It's now more the private markets, some were SKU financings. But I think over time, it will be more traditional transactions in the private space. In terms of sectors, I think about it in a couple of ways. I guess one is sort of the sectors where the trends have been disrupted, but I think long term will revert, are very interesting areas. So I'd throw out a few. One would be global travel. Airline travel, the CAGR on that for 50 years has been 5% a year. Obviously, that's a sector that, until there's a vaccine, is going to be much lower, but I think ultimately will reverse. So industry will revert. So industries like aerospace should do well. Hotels should recover over time. These are things we believe in, but again, you want to believe a gradual recovery. But if there are assets, airports themselves from an infrastructure context, that you think if you have an opportunity to invest in these, we see it as more temporary in nature. I would put location-based entertainment in the same areas in the sense that people want to go to theme parks, people want to go to water parks. You saw when Shanghai Disney reopened, it filled up very quickly. Again, once there's a perception of safety, I think those trends will continue. So if you can buy assets in that -- in those areas at discounted prices, that's attractive. And the third sort of mega trend, I still think urbanization continues. I know people will say, cities are unsafe and so forth. I remember after 9/11, this discussion, people wouldn't go back to office towers. I think fundamentally, people will go back. But again, there's going to be a need for perception of safety. And so that would be another area where we would deploy capital. I would say another section of investment areas that are attractive would be where the trends have really accelerated. So this would mostly be in the digital world, and you can express this in a bunch of different ways at Blackstone. But e-commerce, everyone knows, has picked up meaningfully. I don't think we're going back. There may have been a little exaggerated spike here, it will decline. But the long-term trend towards e-commerce is powerful. That's why we've oriented so much of our real estate business towards logistics, but we're doing other things in private equity and growth equity in that area. Content creation would be an area that should see a huge uplift as well because of what's happening with mobile, video, online gaming, music. The migration to the cloud, I think, continues, SaaS-based businesses. We bought a big business, Ultimate Software, last year. We're excited about cyber security. Just as we move online, the bad guys do as well. Digital payments, I think that will accelerate. You've seen it in China over time. I think the U.S. and Europe will play some catch-up. And then life sciences will get a further boost. It's an area we've gone into strategically with the life science business, but it's also our biggest opportunistic real estate investment platform with BioMed and I think you'll continue to see dollars. So I think all those trends get a pickup and will be interesting. And then in terms of things that we're going to try to avoid, I would say, things that are sort of a bit on the wrong side of history today. So enclosed malls and department stores, we're concerned about, particularly in the U.S. and Europe. Movie theaters, as you can stream things increasingly directly, I think that's an area to be cautious. Legacy advertising, some legacy software businesses. A lot of these things are maybe distressed opportunities, but you worry about secular challenges as opposed to just cyclical decline. So we're looking at this lens of big thematic trend. And then looking at it across real estate and infrastructure credit private equity, you name it. And I think it's important because a lot of these trends look very similar. We were looking at a bank that we own in Eastern Europe that's seeing almost the same change in spending patterns in the crisis that we're seeing in U.S. and other places around the globe. So I think these big mega trends will have a large influence on how we deploy capital.

Great. And in the first quarter, I think you deployed about $15 billion of capital. How do you see that pace of deployment so far here into the second quarter?

Well, I'm not going to give any specific guidance, but I would just say that what the firm benefits from is a very broad platform. So because we have different geographies, all different asset classes and different cost of capital, we've generally found ways to deploy capital in all different market conditions. On the headwind side, obviously, what happens in terms of folks doing sales, could be public or private, public companies being sold, private assets being sold, people tend to pull back and hesitate a bit, and that can slow. We saw that after 9/11. We certainly saw it after '08, '09. So I would expect that deployment should accelerate as we get later into the year once we get sort of the deepest part of the crisis behind us.

And in the first quarter, we saw some large portfolio markdowns, recognizing those are -- can be temporal point in time. Can you talk about how your portfolio companies are navigating through this environment, you mentioned staying power earlier. What actions are you taking to shore up your portfolio company health?

Yes. So as I said, that's been a top priority, particularly in the most impacted industries. We've done a range of things. Obviously, you had to look in some of the businesses where you shut down, unemployment and furloughs. Every company we went through in terms of capital expenditures and in many cases, like most businesses, cut back capital expenditures, where you focused on liquidity in the near term. We went out during the heat of the crisis and bought a bunch of debt back on some of our businesses because we had more confidence than the market did. And then as markets have more normalized, we've begun issuing debt at a bunch of companies in order to provide additional liquidity, and that's been very helpful. We just did an equity offering, actually, in the last day in our mortgage REIT. I just think taking advantage of more liquid markets makes a lot of sense for companies as you're thinking about -- as we talked about having staying power because you don't know what's to come. You don't know what the pandemic is going to look like. I also think now many of our companies can use this as an offensive opportunity, cap -- use that capital raise to buy competitors who may not be as well capitalized to buy tuck-in acquisitions. I think there will be some of those opportunities. We're looking at some of those real time. And overall, again, the benefit of having our fund structure and the significant reserves put our companies in pretty good stead. And then there are a narrow set of businesses where you'll say, putting in new capital may not make sense. I think that will be a very small subset of our businesses. But overall, I think our companies, our management teams, our portfolio operation teams, everybody is working very closely together, and I think, it feels pretty good about our portfolio and how we're going to ride through this storm.

And given the recovery that we've seen in equity markets quarter-to-date, do most of the negative marks from the first quarter get reversed in your view?

Yes. Again, I'm going to -- I can't really talk about valuations mid-quarter. What I can say is, obviously, we had a very difficult first quarter in markets. And if you look at public equity markets or the public equities we hold in some of our funds, they've obviously rallied strongly. Similarly, we have big exposure to the leveraged loan in high yield markets, they've rallied strongly. So it's clearly going to be a better market environment than what we saw in Q1.

And with equity markets recovered so far this year about flat on the year for the S&P, what does it take for monetizations would you say to pick up at this point? And how are you thinking about that outlook there?

Yes. And again, we talked about at the end of the first quarter that given, at that point, very sharp dislocation in markets, that, that had impacted our decision around sale processes. Obviously, you don't want to be a forced seller at a terrible time. And so we said we expect that realizations would be muted for some time. Markets have recovered now, and that does give us the opportunity to restart some of these sale processes. And to your question, Mike, if markets continue to be supportive, it should be a positive for realizations over time.

Great. And why don't we dive into the real estate part of the business. Certainly, I'm seeing a number of questions come in on the webcast as well on the real estate front here. So the pandemic has arguably accelerated the shift to e-commerce, raising some questions around the future of brick-and-mortar retail. And now with more remote working, raising questions around the future of office. So curious to hear your perspective around the outlook for the different pieces of the real estate marketplace and how you see that evolving?

Yes. So I'd start with -- obviously, people are focused on a lot of concerns around the sector. It's obviously physically based. I think the good news has been payments have generally been better than most people expected, and rents had been more resilient. So that's a positive. I'd say the other silver linings longer term are that extremely low interest rates are generally positive for real estate values if you have confidence in the steadiness of that income stream. And also, I think you will see a reduction in new supply in this environment. Access to capital after a downturn for developers becomes tougher and people utilize their dollars to shore up their existing portfolio. So I think there are some intermediate and longer-term positives. In terms of what happens in the real estate space, there's -- I think there'll be pretty wide dispersion. We talked about logistics, particularly last mile logistics should do quite well. Life science, office buildings, again, should do quite well. I think apartments, generally in the U.S. and around the world, housing was in pretty good equilibrium coming into this. And people generally pay their rent to maintain the roof over their heads. And so that's a sector we expect that will do well. As you move into office, the picture is more mixed. There'll be concerns about going into cities for a while. Some companies are talking about more remote work, as you referenced. Unemployment has gone up. So companies may not need as much space. And that should put pressure on office markets. On the flip side, generally, you have long-term leases, which is helpful on the office business. Some companies will look at less density, which should be helpful. And fundamentally, I believe that companies are more productive together. And I think, again, if we get back to a place where there's a perception of safety, either because the virus sort of burns out over time or we get a vaccine sometime, I do think people will go back into cities and go back into office buildings. But near term, it's a sector that will have some headwinds. In terms of the toughest sectors near term, obviously, the hotels have taken the biggest hit. Again there, I think, as things pick back up, you'll see travel, but a limited service Hampton Inn in a rural area will come back a lot faster than a large urban meetings hotel that depends on national and international travel. So I think there'll be a range of outcomes in the hotel business over time. But I fundamentally believe travel comes back. Retail, which I touched on, I think, is hard, particularly the enclosed malls with the challenges around apparel and department stores. And generally high rent in that sector. I think that's tough, more grocery anchored retail, I think, is better positioned and then I'd finish, I guess, with senior living, which has been badly hurt because of the fatalities in that space. Again, I would expect, given an aging population, once we move back to a period of perceived safety, people would go back into senior living assets. So I think real estate is a long-term asset class. I think the fact that there probably will be less building and low rates should be supportive of values over time. But in a number of these sectors, there should be some headwinds that will weigh on them for the next couple of years. And I think you have to take that into account when you're deploying capital.

And while we're on the topic of real estate, I'm just seeing some questions here on the webcast around cap rates, any sort of perspectives there you're able to say or share in this rate environment as you look across how you see cap rates evolving across the different subsectors there?

Yes. I think in the sectors that are perceived to be the winners coming out of this, I think it's likely that cap rates could decline. Borrowing costs in the U.S. and Europe are so low, you're now borrowing with a spread at sub 2%. I think that puts downward pressure. Now on the flip side, if you had an office building in an urban center and the tenant rolls next year, that asset may see a higher cap rate as a result of that, because of the risk and the difficulty of providing financing. But the more stabilized an asset is, and it doesn't just apply to real estate, it applies to infrastructure, anything that's viewed as more fixed income and safe in nature, even technology companies with moats around their businesses, I think you could see a re-rating higher, which is a little bit counterintuitive to what one might have expected, let's say, 60 days ago.

Great. And maybe we could talk a little bit more about the platform, the real estate platform that you've built out over the years. And the sustainable competitive advantages that you've created here. I'm just curious to hear your perspectives around that, particularly around how the platform is very differentiated, how you perceive that versus others in the marketplace?

Yes. Well, look, for -- really, since we've been public, one of the Knox, I don't know if Knox is right on Blackstone versus other competitors, just look how big Blackstone is in real estate, therefore, others had more growth opportunity, Blackstone's more capped. And the reality has been different. We've continued to grow our real estate business at a very fast rate. And I think it reflects a number of things. One is we just operate at such a unique scale. The number of people we have around the globe on the ground is significant. What we see in different markets around the globe is significant, and we're very integrated. And that gives us, I think, a competitive advantage. If investing is about connecting dots and seeing patterns, there's nobody who gets to see more patterns in real estate than Blackstone. And I think that's been very helpful. Also, just the ability to write really large checks since the '08, '09 period, there's a pretty small universe of people who can do that. And you saw that after the last crisis, we bought GE's real estate business for $20 plus billion. Last year, we bought GLP's U.S. industrial business for $20 billion, basically. That scale is a huge advantage. The people we have, who've been working together for a long time, their experience, that's a great advantage. And the fact that we're an opportunistic investor across the globe, we're a core plus investor. We're in mortgage debt, mezz debt, liquid debt across the globe in real estate. All of that helps us a lot. And we've built a brand that investors, both retail and institutional investors, have huge confidence in. And so it's a great long-term asset class. We've delivered terrific performance over time, and we are in a somewhat unique spot today. So it's one of the things that gives me a lot of confidence about the firm.

Great. Maybe shifting over to private equity, given the macro backdrop here, can you talk about some of the themes that you're investing into? What areas are you avoiding? And deployment activity has been a little bit quieter than what one may have thought. I guess how long does it take you think until we get back to some of the large LBO activity?

Yes. Well, I would say this, again, we have a terrific private equity franchise and great positioning. Again, a lot of similarities in terms of operating at scale and what we get to see around the globe. In terms of focus, I talked about a bunch of those themes earlier around faster-growing businesses, many of which are technology oriented. I think health care also, we just bought a business called HealthEdge in the health care data area. We really like these faster-growing businesses and like businesses in sort of the virtual world, even Refinitiv, in the data business, which has turned out to be a terrific investment, fits well with some of our themes. I would say, in general, trying to buy higher quality companies is really important. And I think whatever it is, it doesn't have to be a fast-growing technology business. It just needs to be a very high-quality business. I think that's important to us. I think having the ability to intervene and create value, which is one of the reasons why our performance has been so good in private equity over long term, that matters to us, and we can do it on a global basis. I would say, in terms of some geographies beyond the U.S., we still like India a lot in places like IT services and the rising consumer in India. In energy, which has been a tough space, we like the MLP area because we think there'll still be plenty of things delivered via pipelines, much in the way of energy coming that way. We also like battery technology because of the growth in sustainable energy. And when we talk about private equity, it's not just -- our private equity category includes things like secondaries, which is a business we like a lot because of the mega trends in alternatives. Alternatives continue to grow at high single digits, and yet there's only a very small amount of secondary activity. So that's an area in private equity, infrastructure, real estate, we like a lot. In our tactical opportunities space, we've done a lot in defense and telecom infrastructures, both businesses where we think there are a lot of tailwinds. And life sciences, which I touched on, we've done a lot of exciting things. So private equity for us is a very broad category. In traditional corporate private equity, to your specific question, Mike, I think as markets recover and debt markets recover, I think you can begin to see deals get done again. Obviously, when leverage loans are trading at $0.75 or whatever they were in March and spreads have gapped out, very hard to get new deals done. But now with leverage loans back in the low to mid-90s, banks are willing to take on risk, and frankly, a very little legacy inventory on their books. So I think we'll see a pickup. But as I said before, it can take a little bit of time for people to digest the new world and what their expectations are on sale. But we're really uniquely positioned in the sense we've got this new $25 billion plus fund. We have a brand-new core private equity fund. We have a brand-new energy fund and we still have a fair amount of capital on our Asia private equity fund. So we really like the spot we're sitting in.

Now Blackstone has grown client assets annually in recent years at a mid-teens growth rate. I guess how has the current environment here altered your outlook for growth there in any way? And how much growth would you say is left at this point? And maybe you can update us on some of your newer initiatives?

Yes. It's interesting. If anything, I'm more enthused about the long-term prospects for the business. And I say that because the challenges for our clients remain very significant. They oftentimes have long-term hurdles of 6% or 7% and they face a global interest rate environment that's almost 0. And so -- and they have a long-term horizon. So the basic idea of trading off liquidity to get higher returns seems sensible to them. And they've continued to see outperformance on a net basis from their alternatives portfolio. So I think the path of travel continues in that direction. And just putting numbers on it, I think the global public market equity cap, something like $100 trillion. And in private equity, specifically, there's $2 trillion. And if you expand it up to bonds and infrastructure and real estate, there's something -- I think it's close to $300 trillion of assets and the total alternatives universe is $6 trillion. So I still think there's a lot of opportunity for us. And what makes me excited, I'd say 2 things about us. One is we already have a lot of oars in the water, just existing business units that have the opportunity to expand. So we talked about core plus real estate. We've got 3 institutional open-ended funds plus BREIT. We've got a public mortgage REIT. We've got a bunch of things that I think could grow to a much greater scale over time. We think in credit, there are a lot of things we could do around the globe to expand that platform. I think retail, by the way, is a very interesting area as it relates to credit. We've got newer businesses like life sciences and growth equity that are in their very early days. Infrastructure, I would put in that category. These are big investable asset classes where we're still very small relative to the size of the investable universe. And so that to me is very interesting. And then there are big markets, retail, insurance, where our penetration as an industry and Blackstone as a firm are still pretty low. The Department of Labor came out and said they think it's appropriate for a percentage of 401(k) assets to go in target-dated funds to potentially go into private assets. I think that's a very encouraging sign and makes sense given that individual investors who are thinking about retiring 40 years from now, don't necessarily need liquidity -- daily liquidity for their assets. And similarly, insurance companies face an environment where they're in a 0% interest rate environment, and they need to get higher returns as well. So when I look across our platform, and we said after the first quarter, we thought the pace of fundraising would be slower, but still healthy. And that's what happens in a dislocated market. But my long-term confidence in Blackstone, given the strength of the brand, the performance we've delivered, the breadth of the platform and the need for returns from our underlying investors, continues to be very high.

Maybe diving in on some of those areas you touched upon, maybe starting with BREIT. It has been an area of the focus for the firm recently. The strategy raised about $5 billion, I believe, it was in the first quarter alone, it's grown to over $16 billion in client assets. How big do you think this could get? And what are the expectations from clients around liquidity in this product?

So I'd start with as we identified a market opportunity, which is individual investors didn't have the opportunity to invest in private real estate. Other than private REIT operators, who historically charge very high fees, we're not well aligned with the investors' performance and generally did not have very experienced investment teams, and the results were poor. And our thought process was what happens if we brought Blackstone quality investment discipline, and we charge basically institutional fees. And to your point, Mike, created a product that offered more liquidity than our typical drawdown funds. And what we've seen from the market is a very strong response. And I think it speaks to the power of Blackstone and our brand. This didn't require much capital to build this business, virtually none. And it required focus, and we were really very well positioned to build this business. The market has responded quite well. Obviously, things slowed at the end of the first quarter in light of what happened. But our long-term confidence in BREIT is very high. And we positioned the portfolio where the vast majority of it's in rental apartments and logistics, quite well. So I think it, again, shows our ability to innovate. We've got -- sort of built into our DNA. It's something Steve is constantly preaching, how can we build adjacencies against our existing platforms and to serve more clients effectively and deliver great returns. I think BREIT is a classic example of that and something that we've said could grow to be one of the largest earnings drivers at the firm.

Insurance is another area of focus at Blackstone, one, where you're taking, I believe, a dual approach here, serving both third-party insurance companies and arguably also some more strategic relationships as well. Can you talk about how you navigate any potential conflicts of serving both? And how do you see the competitive backdrop emerging as more firms are targeting the insurance sector? And broadly, if you could talk about your growth outlook here on the insurance side?

Yes. So as I said earlier, I think insurance is really interesting because of the scale of the market and how difficult it is to deliver returns through traditional investment-grade governments or corporates. And so the need for a more direct private credit, more structured credit and some exposure to alternatives, although that's limited in an insurance context, a combination of those things can really help drive performance. And again, given the breadth of our platform, we think we're well positioned to do this. In terms of conflicts, we're in the business of serving clients, a wide range of clients in all of our areas. I don't see this as much different. Our largest client today, Fidelity & Guaranty, which we had an investment in, has now been sold to FNF. We're very focused on delivering for them. We're focused on delivering for other insurance clients. We think it is a big investable universe. We'd like to do more. It has gotten more competitive. Other alternative players are focused on it. So we're certainly not alone pursuing this opportunity. Today, we have about $60 billion of insurance AUM. We would hope to grow that meaningfully, given the scale of the insurance market. And like anything, it's just going to take, I think, focus. And we've built -- we hired a terrific leader of that business, Gilles Dellaert, and I think there's a lot of opportunity. But again, the basis for it is delivering great returns to these investors who've got a long-term horizon.

Shifting to direct lending. You've been rebuilding the BDC business after selling your last business. Can you talk about how this is progressing here? And how big of an opportunity do you see for Blackstone in direct lending?

So as you know, a couple of years ago, we exited a joint venture we had. We got paid $600 million and gave up $20 billion of AUM, which reflects our confidence and our desire to sort of own and control our own destiny. And at this point, I think we said at the end of the first quarter, we were back up to $12 billion of AUM. We think this is a business that can grow quite a bit, delivering a direct lending product to investors. Both retail and institutional investors makes a lot of sense. We have this very broad platform that's able to originate loans, which is the key to building this kind of business. And again, it reflects our powerful ability to raise capital from third parties who have confidence in us. So it's still a rebuilding in process, but I would say the momentum is strong, both in terms of fundraising and deployment.

Great. And I'm just checking here on the webcast, some questions coming in. Sorry to go back over to real estate. There's a lot of interest there. But I believe in the past, you said you didn't want to be on the wrong side of history, about retail, in particular. Do you think there'll be some interesting distressed opportunities that could be compelling within real estate in particular in retail?

I think retail is tough, particularly the enclosed malls because I think there are going to be significant issues on rent and vacancy and capital expenditures. And so that -- I think that business has secular headwinds. And you saw that today where arguably, a company that owned the best malls in America, Simon made a decision to not move forward. So I'm, I would say, more cautious on the retail. I was a little more positive, as I noted, on grocery anchored, more infill, more convenience oriented. I would say in terms of where the distress to us would be most interesting is probably more in the hotel space, just given that there are lots of hotels producing negative EBITDA these days. And we think there ultimately will be a recovery. And I think the office market, a lot of investors will be quite cautious. And I think in markets, particularly markets that are more technology focused, more content creation focused, I think they'll end up recovering probably better than people expect. So again, in real estate, like elsewhere, it's where there's sort of a cyclical decline, and we ultimately think there's a recovery where I'm concerned about the secular prospects. That's where we tend to be more cautious.

Great. And we're just about out of time. So final question here. It's been almost a year since the conversion to a C Corporation. Blackstone's stock is up about nearly 40% over the last 12 months. S&P is up about 11%. I guess why is it now a good time for investors to be buying shares in Blackstone in your view?

Well, I'd start by saying, I think a lot of that uplift was related to the re-rating that process that began when we converted. We had a security that most investors just weren't able to buy because of the K-1s and tax inefficiency. And there were just a bunch of impediments we couldn't be in indices. So I think you have to discount some of this. And then just step back and look at the company overall. We're in a sector that we've talked about that we think has tremendous long-term growth, and we are the market leader in this space. We have a brand that is really powerful. And I think it's hard to underestimate what that enables us to do. We've got a culture of innovation. We're very adept and focused on building and creating new things. So there's lots of opportunity, we think, for growth. We don't need capital to grow. One of my favorite stats is across our $538 billion of AUM, we have less than $2 billion invested in our funds. We have more from individuals, but as a firm, we don't really need much capital. And as a result, we have virtually no net debt at all, less than 1% of enterprise value. And we're able to pay out 100% of earnings to shareholders, which is what we've done the last couple of years in the form of dividends and share repurchases. And so when we look at that, plus much of our income is getting more recurring in nature. We reaffirm, despite all the challenges at the end of the first quarter, that we were on this path we had outlined at our Investor Day, to $2 of fee-related earnings. And so the switch in terms of the nature of our earnings and the more recurring nature, I think, is quite positive. And then just very simply, this is a company that's grown earnings at basically double the rate of the S&P over the last 10 years and today has a dividend yield that's 70% higher than the S&P and basically trades in line with the S&P. So I always say it's very hard to forecast what will happen in our business over the next couple of quarters. But my confidence in the long-term prospects for Blackstone are extraordinarily high.

Great. Well, I'm afraid we're going to have to leave it there. We're out of time, Jon. Thank you so much for joining us today.

Mike, thank you. Thanks, everybody, for listening. Take care.