Blackstone Inc. (BX) Earnings Call Transcript & Summary

Good day, and welcome to the Blackstone Second Quarter 2026 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Weston 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 Steve Schwarzman, Chairman and Chief Executive Officer; Jon Gray, President and Chief Operating Officer; and Michael 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'd 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. A discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K. We will also refer to non-GAAP measures, and you'll find reconciliations in the press release on the shareholders page of our website. Also note that nothing on this call constitutes an [indiscernible] or a solicitation of an offer to purchase an interest in any Blackstone fund. Audiocast is copyrighted material of Blackstone and may not be duplicated without consent. On results, we reported GAAP 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 3. And with that, I'll now turn the call over to Steve.

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 as we start to monetize some of the substantial gains we've been building in these areas in performance revenues. Over the past several years, we've been regularly sharing our views on the transformative potential of AI and how we've 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, can't 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. And we invested directly into the fastest-growing private companies in the world, including Anthropic, Open AI and SpaceX. And we're now creating new companies and platforms that we believe will play a critical role in the advancement of AI, including 4 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 a Blackstone REIT known as BXDC. Something public market investors can access directly to acquire stabilized newly constructed data centers. The $2 billion offering representing 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 BXDC. In addition to these new ventures, we're 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 3x 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. And while it's 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 the 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've generated highly differentiated returns for LPs in these areas as well as highlighted 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'm sharing these examples to highlight the remarkable scale of capital needed for the AI build-out and the unprecedented opportunities it's 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're mindful of the potential for excessive exuberance in this area, and we've carefully chosen our spots leveraging our scale and knowledge advantage to build conviction. We focused on identifying compelling risk-adjusted returns with outside upside potential, in many cases, meaningful downside protection. On the societal implications of AI, I've been extensively engaged on this topic since I made a major donation in 2018 to MIT establishing the Schwarzman College of Computing. And this includes a focus on AI safety. I've been spending a lot of time with leaders in the industry and various policymakers 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 as precedent in the Industrial Revolution and the commercialization of electricity. Each time in history, there's been this type of dramatic change. Economies have adjusted, and the standard of living for virtually everyone in society has 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's 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'll turn it over to Jon.

Thank you, Steve, and good morning, everyone. The seed planting we've 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 3 Is. At the same time, the IPO market is strengthening, setting the foundation for greater realizations and performance revenues over time. I'll 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're seeing our momentum accelerate across numerous areas. In infrastructure, we launched our dedicated platform 8 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 18% net annual return since inception for the co-mingled [ AIP ] strategy. Meanwhile, our multi-asset investing business, BXMA, is experiencing a renaissance. We originally entered the hedge fund of funds business in 1990 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 6 years. AUM reached a record $109 billion, up 21% year-over-year, representing its fastest organic growth in nearly 15 years. when the segment was less than half of its current size. 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 highly differentiated strategies. 3 of these funds hit their hard cap so far in 2026 with excess demand, an opportunistic private credit, life sciences and Asia private equity, and we expect our new private equity energy transition flagship to hit its hard cap soon as well. Taken together, these 4 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 key energy transition flagship closed on nearly $6 billion in the second quarter, already equal in size to the prior vintage on its way to an expected $8.7 billion. In secondaries, we've raised over $14 billion today 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 on 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're seeing continued strong engagement with institutions across our noninvestment-grade strategies despite the market noise earlier in the year. At the same time, we're benefiting significantly from the massive secular shift underway toward investment-grade private credit. A new direct-to-customer model has taken hold, which brings clients right up to borrowers, leading to a better experience for both. In the insured 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 2 years, and we continue to add more on a global basis. We're building something highly differentiated in this channel. And have established a massive sale 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. BXPE led the way again in the second quarter with $2.4 billion raise, bringing its NAV to over $25 billion in only 10 quarters. June represented the best month of sales since launch at $1.2 billion. BXPE 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 in private wealth BXINFRA raised approximately $900 million in the second quarter, bringing its NAV to $6 billion in just 6 quarters, underpinned by a 16% annualized net return in its largest ship class. BREIT raised $1.2 billion in the second quarter, while repurchases continued to define sharply falling 42% year-over-year and down 33% sequentially from Q1. Resulting in the best regular way net flows in nearly 4 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, Brad's gross sales were $1 billion in the second quarter. repurchase requests remained 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 2 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 the individuals with simplified access to 3 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. And 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's playing out. In the first 6 months of the year, U.S. IPO activity increased sixfold compared to the same time last year, while global issuance rose more than 3.5 hold. Against this backdrop, Blackstone has executed 3 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 8 IPOs on file globally from a 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'm extremely confident about the future. With that, I will turn things over to Michael Chae.

Thanks, Jon, and good morning, everyone. 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've 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 3 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 4 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 fee revenue gain. 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 of perpetual strategies. These revenues increased nearly threefold for both [ BFE ] and BREIT, alongside contributions from BCRED, BIP, BXINFRA and other vehicles. Pay management 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 in 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 [indiscernible] opportunistic funds and headwinds in our institutional cores 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 fivefold to the highest level in 4 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 Steve discussed, along with multiple realizations in the energy portfolio. These included a manufacturer of engineered structures for electric transmission, natural gas pipeline, a Europe-based environmental services firm and the public stock of an energy solutions company. Overall, a firm's embedded realization potential is significant. The net accrued performance revenue on our balance sheet, our store value now stands at $7.5 billion or $6 per share, the highest level in 4 years, up 13% year-over-year and up 7% sequentially from Q1. And while we do expect a sequential deceleration in net realizations in the third quarter, we anticipate a robust fourth quarter and 2027. That brings me to investment performance, which, as Steve mentioned, was highlighted by outstanding returns and numerous strategies driven in significant part by our AI-related portfolio. This was illustrated in our returns in infrastructure our dedicated energy strategies, BXPE, 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 its positioning in the AI area. For the firm overall, AI-related holdings comprised 9 of the 10 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 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 of 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 depreciation in history and is supporting robust inflows and continued double-digit year-over-year growth in AUM. In credit, our non-investment grade private credit strategies reported a gross return of 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 balance to returns. Here too, our energy funds outperformed with our most recent BGREEN 3 reporting a 4.5% gross return in the quarter. Finally, in real estate. Overall valleys appreciated modestly in the second quarter, led by strength of data centers, partly offset by declines in life sciences office and certain other areas. While the recovery in commercial real estate has been impacted by the increase in base rates, our platform remains well positioned with data centers, logistics and rental housing, now comprising nearly 80% of the global equity portfolio. In logistics, our largest exposure to real estate we're seeing U.S. leasing activity meaningfully reaccelerate. And for data centers, it's hard to overstate their importance impact, the most recent vintages of our breadth Global and Asia strategies, which appreciated 7% and 3.7% in the second quarter, respectively, along with our [ BPPS ] institutional core+ vehicle and, of course, BREIT are 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're 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 4 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.

[Operator Instructions] We will take our first question from Glenn Schorr with Evercore.

Maybe we'll pick up where you just left off, Michael. I respect all the 20-plus percent growth numbers that you all ran through. You've got a lot of capital raising, a 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 like 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 deployment, the fee Holly roll-offs, credit stabilizing, things like that, that would be helpful. Appreciate.

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 will activate -- we've activated or will activate this year. So that's our SP10 fund, our Asia III fund in [ BPC ], our energy transition fund. Second, I'd say the seasoning and expansion of perpetual strategies, particularly across our flagship private wealth vehicles and our infrastructure platform. So as you know, as Jon said, our BXPE NAV $25 billion, that's up 2x year-over-year. Our infrastructure business, up 40% year-over-year BXINFRA, new product introductions. So that is a very positive picture. And I would add to that, in BXMA in a similarly NAV-based business, by and large, AUMs up 21%, and performance in net flow activity remained exceptionally strong. And then in credit, we see underlying positive growth in credit insurance across the institutional insurance channels. We look to an eventual stabilization in retail flows AUM, as you know, for the whole business is up 15% year-over-year. Inflows are healthy. The IABC portion of that business, really private investment grade, up in the 20% AUM are year-over-year. the insurance business, AUM up 15% year-over-year. And importantly, you referenced dry powder, our credit business overall ended the quarter with $84 billion of dry powder, which, as you know, largely earns fees as it's invested. That dry powder balance is over double where it was at the beginning of 2024 and almost 1/3 larger than just the beginning of this year. So that's really this built in sort of coiled spring as it relates to expanding management fee growth. And then finally and importantly, we see stabilization in the real estate based fee trends next year. So if you take those pieces together, we think we're well positioned for a very strong 2027. And then I would just add finally in the meantime, as you know, beyond base management fees, the firm today really benefits from a significantly broader fee-generating platform. And as the results in this court demonstrated, that includes the growing scale and contribution from transaction fees and fee-related performance revenue. So in the first half of the year, total fee revenues were up 21%. So we think that it's a very positive picture about 2027. In the meantime, the overall fee revenue base showing strong momentum.

We will take our next question from Alex Blostein with Goldman Sachs.

I would love to double-click on what you guys are seeing in the wealth panel. Jon, a couple of positive remarks. I think you mentioned. As far as the third quarter goes, so maybe what you're hearing on the ground on BCRED performance year-to-date, I think is a little challenged, though, but it sounds like you've seen some improvement in redemption. So above to get into that a little more. And then ultimately, also on the new products that you launched with Wellington and Vanguard, I would love to just get your perspective on how you're planning to scale these products and flow through the management fees ultimately for Blackstone from them.

Thanks, Alex. The wealth platform is in really terrific shape. AUM, as we mentioned, 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 sort of in the heart of both the credit and the war. We did see a little bit of a [ deceleration ] and we're now back to the levels we were in the first quarter on a monthly basis. The mix has changed, obviously, with a lot of strength, as you heard in BXPE, BXINFRA, 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, which is it's early in the quarter. but the redemptions in BCRED are down materially, which is positive. So I think you've got to look at this overall platform and think about it holistically, the strength of our brand, the strength of our distribution team, our global reach, the performance we've provided the confidence we've built with financial advisers and clients, this is a very special thing that's been built. And we think the potential for it to grow is quite enormous with those initial sort of 4 flagships. But then with new product launches, the hedge fund product we talked about. And then to your point, Wellington, Vanguard. These are 2 amazing firms who have long-storied histories who are focused on investment performance as we are and the idea of creating products that are one-stop shopping integrated, where you have all the Blackstone private 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 in terms of -- 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's a larger universe of potential buyers. And there are folks who want just, I think, a simpler, easier solution. We're excited. It will take time, like everything to build these things, but it's a couple more engines we're adding. And I think we do offer something that is really unique. And again, performance, so important, if you look at BREIT relative to real estate products. If you look at how BCRED has performed since its inception. If you look at BXPE and BXINFRA over the last couple of years. That is remarkable, which is why we think we have built so much loyalty with the customers.

We'll take our next question from Michael Cyprus with Morgan Stanley.

I just want to ask about AI, if AI compute increasingly becomes a scarce economic resource. Could we eventually see compute capacity in your view, emerge as a stand-alone investable asset class similar to what we see in real estate infrastructure or energy. Can you talk about how you're positioning for that? And maybe that kind of dovetails with the new REIT, [ BXDC ] where you mentioned a massive opportunity to get to $1 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?

It's a great question, Mike. We definitely see today a global shortage of compute. And there's 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, the large language model companies, our friends there, they all would want more capacity. And so as we have this energy shortage in places there's 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. And I do think, ultimately, that -- what that means is those things that are built operating are worth more. Data centers are a great example of that. We've seen benefits obviously for the neo clouds, which can deliver compute more real time. And 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'll see this here. I think BXDC has the potential to grow significantly because there's not just data centers that are owned by the developers and investors like us, there's also an enormous amount of data centers on the balance sheets of the big hyperscalers. So as they need more capital, I think you'll 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've done a lot of investments in the midstream space, pipelines, LNG, that becomes more valuable. So I do believe components of compute because of the shortage of compute will increase in value, and we positioned us, particularly in infrastructure where Sean Klimczak and his team have done just a terrific job but also in real estate, in our energy transition business, we've got a bunch of places where we're exposed to what's happening here. And I do think it points to, at least in the near term, a continued shortage and therefore, value is going up.

And Mike, it's Michael. I'll just add that basically almost every business at the firm that we've 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's credit, infrastructure, real estate, energy, private equity, hybrid capital and tech-ops or BXPE vehicle, the BXMA area as it relates to more liquid parts of the market. Just this breadth, diversity and scale of the business we've built puts us in a position to basically have a capital pool that can be a solution for every need in this area, and the needs are massive. And so you mentioned sort of a single pool of capital. I would just say we can keep innovating. You mentioned BXDC, around the existing platform of businesses and a really, I think, exciting.

We will take our next question from Craig Siegenthaler with Bank of America.

My question is on real estate. And I know this hasn't happened in more than 4 years, but public REIT stocks are outperforming the SP 500 year-to-date. And as you know, very few asset classes have been able to keep pace with U.S. large caps. Now despite this private real estate returns and opportunistic drawdowns in core has still lagged public. So I'm wondering, do you have any line of sight into private returns? And also how this could translate into demand for pre real estate across your LP base?

Well, Craig, I'd start with what's happening on the ground with fundamentals. There has certainly been a headwind last year with Liberation Day and now this year with the war that have kept rates elevated. But sort of underneath the covers, there are a number of positive things happening, which is why I think the public REIT market has moved. And you see that at times that the public markets are more forward looking. And what's happening is there's been a sharp reduction in new supply, and that is starting to have an impact. The area where it's moving first is in logistics, in 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. We're seeing occupancy now and rents start to increase. And investors are seeing this. We're now seeing some large-scale M&A in the public markets with Prologis, what looks to be likely a successful takeover of a $25 billion logistics company in the U.K. and 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. But yes, the public market anticipates this. We've also seen strength in hotels last year, saw negative same-store RevPAR this year. National in the U.S., plus 5%. That's a very positive sign. We've leaned in, in places like San Francisco, again, a bit AI derivative. We bought 3 hotels in the last 6 months. we feel very good about that. And interestingly, in the office market, which has been in a tough spot for a number of years in a place like New York vacancy has fallen from 21.5% to 14.5%, which is a very good sign. We're also seeing -- you mentioned the public REIT market, which is strong, but the public debt market, the CMBS market, volumes are up 23%. So I would say near-term headwind slowing things down because of rates moving up. But I think once we get past the war and we see that start to settle down, the underlying strength and fundamentals and investors' desire to invest in hard assets in a world where there's a lot of uncertainty, I think you'll begin to see this real estate recovery in the private sector pick up pace.

We'll take our next question from Bill Katz with TD Cowen.

Maybe just a big picture question to change topics for a second. So I was listening to Steve's comments about Blackstone being a cheap way to play the opportunity in AI and infrastructure, and we would agree whole hardly with that. How does that inform your views on capital return from here? Stock is down significantly from its highs, obviously, bouncing it say, which is great to see. You have a big payout. Any thoughts of maybe rejiggering the payout rate stepping in on buyback a little bit versus de novo growth? And maybe how are you thinking about capital allocation from here?

Bill, thanks. It's Michael. Look, I think we've 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 like 4x the S&P yield on a yield basis. And then also a more moderate but sort of consistent buyback program. All to add up to that sort of total return of our cash earnings. So we think over the long run, that's been a sound policy for us. It does reflect sort of our business model and the relative capital-light orientation of it. We certainly have scope to look at that over time and more opportunistic use of capital as it relates to the stock. But -- but we try to be consistent and committed to our policy and that's kind of where we are today on that.

We'll take our next question from Brian Bedell with Deutsche Bank.

Great. Maybe just to go back to the really strong momentum in fundraising. It looks like you're now on pace to potentially match or exceed your record year in 2021. So maybe just talk about the confidence in that. I know there's different timing, of course, with the drawdown funds. But as you think about it more broadly, just thinking about that growth momentum across private wealth, credit. Obviously, 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 actually continue to grow into '27 and longer term beyond.

Brian, it's a good question. It's hard to put your finger on it. What we can point to is that we've been in a world of pretty high volatility. And I think it speaks to the resilience and breadth of this franchise. And we managed to raise obviously very significant amounts of money, and we're doing it across all 3 of these channels. So -- you heard about it on the institutional side where we have a number of funds that are exceeding their hard cap in terms of demand. We talked about our BXMA business, which has really renewed momentum, our infrastructure business, which I think will continue to grow at a really breathtaking pace. It is a bit slower in real estate. But remarkably, that business despite its slowness in fundraising, we're still producing these 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. I mean we were up 15% to $290 billion in insurance those clients really appreciate the premium return we can deliver over comparably rated investment-grade credit. And to Michael's point, we're doing these large corporate solutions that are so needed in the energy space, in the digital infrastructure space. And I think we'll continue to gain clients in that area as well. And then wealth, despite all the negative [ headline ] everything, again, up 16% year-on-year to $324 billion, a range of existing products that have delivered and then new product coming online. And I think the thing about Blackstone it's just the strength of the brand we've built. It is recognized globally by investors. They trust the firm, they trust us across multiple channels and that is enabling us to continue to grow without having to borrow money or utilize capital at scale. And we really look at where we are. We do think in terms of outlook, we get a more settled landscape war ending, inflation rates coming down, that will be very helpful for the business. So we've got a lot of confidence on the fundraising outlook over time.

We'll take our next question from Dan Fannon with Jefferies.

I guess 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.

Dan, it's Michael. It's early around margins for next year. But as I said, we're pretty confident about the top line, and we're also confident about our ability to manage expenses and deliver over time operating leverage. So I think we're not going to give a specific viewpoint on that other than to reiterate structurally, we like our margin position.

We'll take our next question from Bart Dziarski with RBC Capital Markets.

I wanted to dive into the transaction fees. So very strong quarter, looked broad-based across private equity, real estate credit. Are there any lumpy items to call out there? And then 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.