Blackstone Inc. (NYSE:BX) Bank of America Securities Financial Services Conference Call February 21, 2024 2:30 PM ET
Company Participants
Michael Chae – Chief Financial Officer
Conference Call Participants
Craig Siegenthaler – Bank of America
Craig Siegenthaler
Good afternoon, everyone. We’re going to get started. This is Craig Siegenthaler from Bank of America, and it’s my pleasure to introduce Michael Chae. Michael is the Chief Financial Officer of Blackstone. He joined Blackstone in 1997 and he has served in several roles, including Head of International Private Equity, Head of Private Equity for Asia Pacific, and he was also senior partner in the U.S. Private Equity business. Michael is a member of the firm’s management committee and sits on the investment committees across the firm’s businesses. Michael, thank you for joining us today.
Michael Chae
Craig, it’s great to be here. Thank you for having us – having me.
Craig Siegenthaler
So let me provide a real quick intro on Blackstone. Blackstone’s AUM is $1 trillion now, making it the largest business in the world. It also has the largest individual investor business, where it started much earlier and dedicated more resources than its peers. The firm has grown AUM by about 14x since the 2007 IPO. And Blackstone is a highly diverse and leading with its scaled businesses across real estate, private equity, credit and hedge funds too. It also is a strategic partnership with 4 different life insurance companies where it doesn’t have any exposure to the liabilities.
Question-and-Answer Session
Q – Craig Siegenthaler
Michael, let’s get start with the macro. So 2024 is shaping up to be a year of inflections. Rates will likely have lower, equity markets have been rising, volatility has been declining. What are your thoughts on this macroeconomic backdrop? And how do you see this playing out for Blackstone?
Michael Chae
Thanks, Craig. Again, it’s great to be here. I think on the macro, starting with sort of the big picture, I think we continue to believe we are both on a disinflationary path and a path that is consistent with the soft landing in the economy at large. Now things like the CPI print from 1.5 weeks ago, obviously, even though there might be some noise in that metric, obviously, reflect that the so-called last mile will be hard. We should expect that, perhaps bumpy. We have an economy that’s obviously running quite strong, nearly full employment, really a high level of confidence both in most of the consumer segment and also among CEOs. We see that in our own portfolio company CEO surveys. They’ve consistently been actually even more optimistic than the investors over the last year or so, and they’ve largely been proven right. But it’s also an economy that we see is decelerating. We see it in hiring. When we survey our portfolio company CEOs 2 years ago, something like 94% of CEOs said hiring was a problem. It was a challenge in the last quarter. That dipped below a majority below 50% for the first time in that time period.
We’re obviously seeing a slowdown in many major economies around the world, the UK, Germany, China, Japan, to some degree. And it’s not talked about as much, but the money supply is steadily decreasing quantitative tightening, probably doesn’t get enough attention, but it’s – not a lot of fanfare, but it’s obviously happening and that has a lagging effect on the real economy. So I think where that leaves us is that with our own internal data, rate cuts will be lower and lighter. It was sort of astonishing that only a month or so ago, the market was supposedly discounting 6 cuts this year. We thought that was very aggressive. So whether that’s sort of in 3 cuts, plus or minus 1, that’s probably a good zone and obviously more second half weighted.
So that said, I think in terms of the market and market participants, and we’ll get into sort of deployment, I think that the dynamics are good. I think the cost of capital, with all that I just said, is clearly coming down. We’ll see obviously bouts of volatility. But I think the – as long as the general economy stayed resilient, which I think is a decent bet, clearly, the market is pivoting to a more risk-on mode, and I think we’ll see that in deployment levels.
Craig Siegenthaler
So let’s move the conversation over to long-term growth. Congratulations on crossing $1 trillion in AUM last year. It does seem like just a few years ago, you guys were around $70 billion at the 2007 IPO, but it was way more than a few years ago now. But – however, this brings to question the law of large numbers and size. There is also a natural level of redemptions through realizations in a private markets business. So should we see a lower-growth trajectory into the future over the next few years than we’ve seen in the prior years because you’ve grown very quickly since the IPO?
Michael Chae
Yes, I think, Craig, to sort of step back, over the last sort of 3, 4 decades of the alternatives industry, you’ve really seen what started among a few kind of pioneering institutional LPs, which was recognizing fundamentally the big idea of the trade-off between liquidity and performance that if you took that portion of your portfolio that could tolerate less liquidity and trade that off and were willing to lock it up with better managers in the private markets that, that would lead to excess returns and yields over time. And that has been proven to be validated and really one of the mega themes in financial services. And that idea continues to travel across the market to new channels, to new geographies and new types of investing. So for us, we continue to see really kind of mega tailwinds in both the markets in which we invest capital and then the markets from which we raise capital to invest. And so on the former, the list is long. It’s private credit, which I know we’ll come back to, infrastructure, energy transition, investing in life sciences and the sort of life sciences revolution that’s going on.
In secondaries and more broadly, the sort of – the very still, I think, early-stage development of markets – secondary markets to provide liquidity to owners of private market assets. Investing in Asia, it’s still a less penetrated market. We’ve been particularly focused on India and Japan. So the list is, I think, very long in that – on that side. And on the other side, the markets for which we raised money to invest, again, we think about it as sort of the 3-legged stool. Insurance capital, which we’ll talk more about, I’m sure that’s – there’s really been a revolution going on in the asset management model around insurance. The retail investing, obviously, these are big markets, $80 trillion; retail, $40 trillion of insurance; and then institutions. And so that’s a – those are – there are amazing tailwinds in both things long term. And we think we are the best-positioned firm in the world to attack that.
In the near term, in terms of growth trends, credit and insurance, I would say, is a generational opportunity for firms like us. And I think we’ll probably have a chance to talk more about that. But if you see in our business, our insurance business in terms of AUM grew 20%-plus last year, over $30 billion of inflows. A lot of that growth is sort of embedded on a multiyear basis. In private wealth services, PWS, I would say there’s a real momentum. There is a cyclicality business. We feel that momentum. We see it in our BCRED, our non-traded BDC, raising almost $1 billion a month; the introduction of a new product, BXP, which is off to a great start. So I would say a generational opportunity in credit insurance, real momentum building in private wealth.
And in the drawdown area in the near term, we focus now for a while about the $150 billion sort of set of vintages. And we are approaching completion on that, even though actually a majority of that capital was not earning management fees as of the end of the year. So that’s a good thing as we move through the next year. But we’ll be obviously in the market with products this year beyond that group. And then sort of looking around the corner, that will come upon a pipeline of the next vintages of drawdown funds. So our secondaries buyout fund, our Tactical Opportunities Comingled Fund, our Core Private Equity Fund, our Asia fund – Asia Private Equity Fund, those are coming around the corner after we get through this set of products, not only in the $150 billion grouping but also for the rest of the year.
Craig Siegenthaler
So Michael, you’re about 80% of the way through your flagship fundraising cycle when you think about funds like BREP and BCP. Although some of the fees haven’t hit FRE just yet, so that will benefit you. But as we think of that mostly institutional fundraising cycle behind us, it kind of means that private wealth and insurance are going to be 2 very important drivers for the future. Do you expect them to accelerate in terms of their inflows to kind of make up the slack once that institutional fundraising cycle concludes?
Michael Chae
Yes. Again, I tried to emphasize, I don’t really see a real institutional fundraising cycle. That – the $150 billion target has been out there for a while, and we’ve sort of moved through it. And as we move through it, there’s another set of funds coming. Private wealth and insurance have been growing strongly, and I think we’ll continue to see momentum on that. So I think on all 3 engines, we’ll continue to see them fire.
Craig Siegenthaler
So, let’s go a little deeper on private wealth. So you’ve been at this business, correct me but – if I’m wrong, about 10 years, you have a great first-mover advantage, biggest global distribution sales force. And then if you think of your products like BREIT, 6x larger than its #2; BCRED, also a category leader. We’ve written about how we think BXP will also be a category leader in that segment, but a lot of momentum there. How important was that first-mover advantage the scale with distribution and also Blackstone’s brand?
Michael Chae
I think you’ve summarized it well. I would add the most important thing, the fourth thing performance, which obviously had to be over time. But I think those four things are – have been the pillars of what we’ve done in private wealth, which we’re better. We think it is quite differentiated. It now comprises almost 1/4 of our AUM. It’s more than doubled in the 3-year time period, notwithstanding the cycle. So we’re really proud of that. In terms of sort of the first-mover advantage, the scale, just to dimension that a bit, we’ve transacted with over 40,000 financial advisers. So there’s a real sort of ecosystem benefit obviously around that. And then, obviously, sort of the brand gets further developed in that channel as a result. We’ve built quite sort of the bricks-and-mortars of the infrastructure – the operational infrastructure necessary to orthostatic platform like that over that decade-plus, 300-plus resources dedicated to that and then many others across the firm supporting it.
And the brand, which you mentioned, I do think that as strong as our brand is in the traditional institutional area, it’s even more differentiated in a channel where brand is even more important. So I think that’s been a big asset. And obviously, it feeds on itself. Everything else we talked about feeds on itself. And that really brings us to performance, where we’re really proud of what we’ve done in sort of the major products in BREIT. We’ve had the [indiscernible] net returns since inception, double the public REIT index over that same time period. In BCRED, it’s been about a 10% net return since inception. Right now, it’s yielding over 10% today. And then as you alluded to, we’ve launched BXP after a lot of sort of planning. I do view that as sort of the third leg to the stool or I’d like to call it like the third killer app: real estate, credit, private equity. It does really represent sort of the best of Blackstone across the private equity segment, where it really leverages our breadth and diversity of private equity strategies, traditional buyout growth, tech ops, secondaries, life sciences, infrastructure and we really are focused on creating something special that the market has really been waiting for in private equity. And we think, again, we are very distinctively positioned to deliver on that. So we broke escrow for the first fundraising month and January 2. It was $1.3 billion. I think that’s some kind of record for a launch like that.
Back to sort of the ecosystem benefits, I believe 92% of the financial advisers who market who had a client investing in BXP in that first month had transacted with us before in BREIT or BCRED. So that is the flywheel, that is sort of the self-reinforcing benefits of the ecosystem that all come from the things we’ve just talked about, brand performance, perseverant, scale, etcetera. So we really are focused and pleased with the progress.
Craig Siegenthaler
Michael, if you look at the $80 trillion of ultrahigh-net-worth and high-net-worth AUM out there, only about 2% is in private. If you look at the institutional channel, it’s something like 25%. And if you talk to the gatekeepers at the biggest wirehouses, their model portfolios are now 30%-plus privates and alts. So where do you think that 2% is heading?
Michael Chae
It’s higher – meaningfully higher, multiples higher. I don’t know if that’s 10% or 15%. I know it will be stratified across the scale of the client. So I think for ultrahigh net worth, very large family offices, depends on their liquidity needs and position. But their portfolios really should, I think, and could resemble large institutions in that sort of the 30% and is perhaps as relative scaling from there. But it will be very significant on very large numbers.
Craig Siegenthaler
So Michael, one more on this topic, private wealth. The competitive landscape has definitely been intensifying. Your peers have much bigger sales forces than they had a couple of years ago, although they have been at it for 10 years. But they’re starting product lineups that look like yours, smaller AUM, but they look similar. Do you see the gap between Blackstone at number one and some of these other firms at number two or Tier 2 narrowing?
Michael Chae
Look, I think it’s a big market opportunity. It’s not a zero-sum game. We have very worthy peers. I think the market will keep growing even as more folks pursue it. We like our position. If you take BREIT, for example, you can’t do that from a standing start or a vacuum. It was in the context of having sort of the dominant real estate business that we have. The private BXP I just mentioned, it leverages the breadth, which I think is very distinctive of our private equity platform. And then I’d say further that this market, in addition to being even, I think, as or even more important differentiating and there being more important, there’s only so much shelf space in the sort of distribution channel as I sit here at BofA Merrill Lynch. And so I think that also create some, I think, some barriers to this.
Craig Siegenthaler
So Michael, why don’t you change the topic to the insurance channel, the other important driver. So your model is very different than a lot of your peers. You have zero liabilities. It’s capital-light, although not exactly capital-free, but it’s definitely more diversified as you have four different IM agreements with four different insurance companies. So how is your model differentiated, in your view? And do you and your leadership team sleep better at night because you don’t have those liability tail risk of a life insurance company?
Michael Chae
I think I’ll start with that question and answer it. I would say yes. But more – I think moreover, it’s a model that is very much consistent with our third-party asset manager DNA and our – alongside that, our capital-light approach. So it’s not like we had to think about what to do or pivot to do it. It’s who we are and who are as a firm that built what we’ve built organically with a very attractive sort of financial model alongside that. And so when I think about our growth strategy, because you mentioned the four important relationships, I would say it’s actually has sort of three important cornerstones. One is on those big strategic partnerships, we’ve done, I think, a good – very good job serving them. You can see that when they grow, we grow. It’s sort of a win-win, virtuous thing.
There’s some evidence of that. When you – in terms of our supporting growth successfully, when you hear some of our partners speak on earnings calls about achieving record sales in the life and annuities business and sort of connecting the dots between that and the asset management capabilities we brought to bear. So that really, I think, important thing and that we’ll continue to grow in that area. And that’s a vital, obviously, part of this.
Second though, which I think gets less attention, probably even more attention over time. it’s less understood, but it’s a critically differentiating aspect of our model, and that’s serving sort of the rest of the market, let’s call it, our SMA business. And so we’ve gone from basically zero bilateral SMAs with individual insurance companies to now a dozen. And within that dozen – and that’s in a pretty short period of time. And within that group of dozen clients and growing, we’ve also in a big subset of those grown our relationship in terms of more strategies.
And obviously, that ability to address the market is really enabled by not being a competitor, not having a captive model and so bringing all the direct origination, asset management capabilities that come from our $400 billion-plus credit platform, corporate and real estate credit and asset-backed credit and comes from having the brand and sort of the infrastructure that we have. So that is very early days, but that is a very important leg to it. And then I’d say the third leg is the international opportunity. Our strategy, since it’s still early days, has been focused on the U.S. In Europe and in Asia, we see over time a big opportunity to take what we’ve done either with respect to strategic partners or individual SMAs and take that internationally.
So I think just stepping back, our model, back to where you started, I think really resonates with clients in the insurance industry because it allows them to have the best of both worlds. All of the capabilities that come from our private credit capabilities around private investment-grade as well as investment-grade, it’s enabled in our big clients, excess spread in 2023 of 190 basis points over A-rated securities. It allows them to get those capabilities that most do – cannot do on their own internally because they don’t have those direct origination capabilities and at the same time, on the liquid stuff, the liquid fixed income stuff, allow them basically invested that at the cheapest cost and the cheapest price to buy basically liquid fixed income beta at the cheapest price from some large players. So that combination, I think, is the – I believe clients are increasingly seeing as the winning combination, and it’s distinctive to our model.
Craig Siegenthaler
Actually, one more insurance question. Basically, all of your large-cap peers have a all-insurance model at this moment. Three of them will be 100% owned with the liabilities. Yours is quite differentiated, but it looks very different in terms of the competitive landscape than it did 5, 6, 7 years ago. At the same time now, annuities are actually pretty strong just because rates have gone up. Many are predicting rates go down. So what I’m wondering is, is this – is the competition going to get a lot more intense? And actually, is this not that bad for Blackstone because you don’t have – you don’t own equity in these businesses?
Michael Chae
I’d say two or three things. One, the fact that we’re not – we’re a non-captive, multi-client model and can serve all the market as a whole outside of the group you mentioned, that’s a competitive advantage. I think we are – on the one hand, I would allow expose as well just the kind of growth in the industry and the demand for asset management capabilities. And so the clients we serve at arm’s length, third parties, are also the – their businesses ebb and flow.
But with that aside, we’re really in the business of generating excess spread, 190 basis points that I mentioned with those big clients last year. And so if you’re doing that and – with the private credit portion of the portfolio, regardless, I think, of industry growth rates as a whole or the rate environment, that is an incredibly compelling service to offer regardless of where you are in the environment.
Craig Siegenthaler
Michael, let’s move on to private credit. So pre-global financial crisis, most banks were running at 20x-plus leverage. Fast forward today, it’s something like 12x. We also have Basel III implementation in front of us. And then we had the March regional bank crisis last year. So what I want to understand is how is Blackstone’s relationships with both large and regional banks evolving, where you can do things like capital relief trades or partner with them to take their assets off them?
Michael Chae
Well, I think, first of all, in terms of private credit, REIT at large, it’s a secular megatrend because it really leverages two sort of subsidiary megatrends. One is, as you were saying, traditional bank retrenchment; and the other the sort of revolution in the asset management around traditional fixed income, meaning the traditional fixed income replacement by private credit, private invest-grade and so forth both for insurance and non-insurance clients.
And then I’d say big picture in that – alongside that is I talked about that liquidity performance trade-off 30, 40 years ago for the alts market overall. We are really early days in terms of that trade-off being recognized, focused on and pursued in the fixed income portion of the portfolio. So whether you call it the 60-40 or 70-30 portfolio, that portion, which is, by the way, like $100 trillion plus or minus traditional fixed income market, is like 1% or 2% penetrated by private credit. And what clients are learning, insurance companies are now moving pretty deliberately through that journey. And I think non-insurance institutions are at the very beginning of understanding this.
The trade-off of some of that portfolio to private credit for excess spreads is a very powerful trend. So I think in terms of partnerships, there is a significant one in a lot of ways. I think – and you basically anticipated them. We do have, I think, a fast-growing, really distinctive strategy in the risk transfer area. We’re a leader in doing that, especially as it relates to certain portfolios like sublines, which we obviously know very well. We have a great team that’s pursuing these things.
And the business was already, I would say, humming and now it’s accelerating even further in the context of some of the forces that you just mentioned. And then I think partnering with banks and regional banks, that’s really at the heart of the asset-backed finance, the ABF opportunity, whether it’s partnering with them or helping clients basically directly originate these assets to fill the vacuum that’s been created to some degree by regional banks pulling back.
We want to invest in that asset. We don’t want to take up the client relationship. Regional banks still have an important raise on Detra in terms of servicing those sort of local customers and consumers of credit, but they’re constrained in terms of their ability to own the asset. We have, I think, the right cost of capital and sort of funding base to help them with those challenges.
Craig Siegenthaler
So I wanted to go a little deeper on your ABF comments. So asset-backed really emerged as a beneficiary of the regional bank crisis in March. So I’m curious, what strategies or vehicles at Blackstone, do you have today that can invest in both investment-grade ABF and non-investment-grade ABF?
Michael Chae
It’s our insurance business, which, as I mentioned, approaching $200 billion. A significant portion of that asset base is invested in and focused on ABF and structured finance writ large, and that includes RMLs and CMLs, consumer finance, equipment finance, infrastructure debt. It’s a broad – there is a broad scope to really what the definition of asset-backed finance is. So, that’s a very meaningful portion of our insurance business, and it is a meaningful and I think increasingly large – increasingly growing portion of our non-insurance credit business. So, it’s still early days in that, but it’s – that is a significant focus for us going forward.
Craig Siegenthaler
Are you seeing infrastructure credit emerge as a bigger asset class here, especially as the equity side of the business is anticipated to be a much bigger business too?
Michael Chae
Yes. I think it’s big and underserved even when you put aside sort of the growth in sponsored activity and infrastructure. And it’s a very compelling thing for us and for our clients, including in insurance, because we are mainly talking about senior-secured investment-grade quality at scale. We can basically deliver some very large-scale investments in those areas on sort of a deal-by-deal, project-by-project basis. And we obviously have significant origination capabilities in infrastructure and energy transition and related verticals. And then importantly, many of these projects entail a very long duration relative to corporate credit, for example, or even real estate credit. And that source of duration is a very important thing in constructing portfolios, especially for insurance companies.
Craig Siegenthaler
So, you originally addressed the infrastructure equity vertical with the permanent capital vehicle that was half funded by a sovereign wealth fund, at least half promised to be committed by a sovereign wealth fund, which they did. How should we think about the pace of inflows going forward from here in that permanent capital infrastructure vehicle?
Michael Chae
Well, it’s been, I would say, a significant success for us. We started – we have been investing in infrastructure kind of related areas for I would say a couple of decades, mainly in our private equity or in our energy private equity area. And when we thought about building a dedicated infrastructure business, we really focused on what I would call the Core+ area in terms of risk-return profile, which we thought was a much larger part of the infrastructure market and also would appropriately align with a perpetual capital vehicle, which we ended up utilizing. And that, that – having that long-duration capital at a very competitive cost of capital would really create a very big addressable market for us. And I think that’s come about. If you look at – we have obviously got from zero to $40 billion in a handful of years. The performance has been terrific, 15% net of – and then if you look at the portfolio of construction, it’s – the assets are really quite compelling. We own the largest toll road operator in Europe, the largest port operator in the U.S., the fastest-growing data center company in the U.S. or globally, excuse me, the largest private renewables developer. So, it’s really a wonderful portfolio. And I think in terms of the growth from here, Craig, I would analogize perhaps to our real estate growth playbook, where if you look at the different sort of dimensions of growth, it’s geographic, meaning Europe and Asia. It’s up and down, the risk-return spectrum, meaning whether it’s opportunistic or core on either side of Core+. And it’s also across the capital structure between equity and debt. Those are all obviously different dimensions that we leveraged in growing our real estate business over many decades and elsewhere in the real assets world, i.e. infrastructure, we think there is a lot of runway to pursue those types of strategies.
Craig Siegenthaler
Two of your largest competitors in the infrastructure vertical just announced a merger. They are now going to be number two. How do you think this impacts competitive landscape in infrastructure equity?
Michael Chae
I think it – well, I think reflects – I don’t know if that impact per se and I think it reflects the attractiveness of the asset class. I think it was a sensible deal for both sides. I also think it reflects that the sort of the strategic imperative for traditional asset managers to grow their alternatives business and how hard it’s been perhaps for some of them to do that or a lot of them – most of them to do that organically. So, I think it reflects maybe those dynamics more than it does changing the game competitively. GIP was a terrific and is a terrific player and competitor with – for we have a lot of respect, and they will continue to be.
Craig Siegenthaler
So, if you mention real estate to probably most investors, they are probably picturing in a band in office building in Chicago or San Francisco. But when we talk about your real estate business…
Michael Chae
There lies the opportunity for us, Craig.
Craig Siegenthaler
Well, the…
Michael Chae
Maybe not those assets, but…
Craig Siegenthaler
Yes, if you are interested in buying those assets, that would be interesting, but – and I don’t think you are. But that’s not exactly what you do. And if I look at your portfolio inside BREIT and BREP, maybe you can talk about exposure to office. And is this something you have to talk about 30x a day?
Michael Chae
Well, not 30x, less than 30x. No, our exposure to office, which we have – I think we have been clear in communicating for a while, is very low. It’s less than 2% in terms of our U.S. traditional office as a portion of our global portfolio. And the flip side of that more positively is the portfolio construction in our real estate business, the work that’s been done over 10 years, the focus on, I think the most compelling secular opportunities and areas is – has been fantastic. It is – I have said this before, I have been here at Blackstone a while, it’s some of our finest work and obviously critical to have done that at scale. In office, what I would say is I think this is a bit what you are getting at, I think we are getting closer to a point where a, I would say, to find perhaps small subset of the office universe, i.e. the highest-quality, best-located modern construction and so forth in certain cities. And those might be some of the CBDs in Europe. It might be in some areas in the U.S., may well become compelling. And so that is – that, along with a number of other areas in our real estate business, are areas of potential opportunity. But we will see over time.
Craig Siegenthaler
So, I have a follow-up, and it’s a portfolio construction question. And it’s probably more geared to Jon Gray, but let’s try it, 5-plus years ago, why did your real estate teams decide to overweight industrial warehouse, multifamily housing, data centers, student housing, and really underweight office? Like what were they seeing in those markets?
Michael Chae
What they were seeing was megatrends and tailwinds around both the supply and demand side of those sectors. So, when you look at warehouses, it was and this is really more on a 10-year basis, seeing the obviously secular tremendous tailwinds around the demand for e-commerce. In data centers I think the idea that the demand for and creation of data globally was exploding sort of with a writhe of intuition around AI that only, I think obviously accelerated even after we, for example, bought QTS. In housing, whether it’s student housing or multifamily or single-family, very clear conviction post the financial crisis, again, more like 10-plus years, not 5 years, around a structural undersupply of housing, which continues, I think to be unfortunately the case. And that theme, I think continues even in the face of temporal oversupply in the multifamily portion of housing overall. So, it really starts with, I think pretty deep-seated thinking about really macro and megatrends, how they affect the simple supply-demand dynamics of the real estate business and leverage insights from across our – and intellectual capital from across our firm and across our businesses.
Craig Siegenthaler
So, coming back to the comment you made earlier that we are not really seeing a lot of new construction in office. And actually, some of the office is converting into multifamily in certain cities. So, my question is, do your investment teams in real estate, are they starting to see a bottom in office? And could we see Blackstone start to deploy in office, again? I think Jon on the last quarterly call called something like a bob in real estate, but that wasn’t office, so I was curious.
Michael Chae
Yes. I think I hit that a few minutes ago, which is I think it really depends. And I think not all office is created – not all real estate and not all office is created equal. And again, I think for a probably fraction of the office market, best located, best construction, highest quality, best locations, they are going hold their value. There will be potentially opportunities. You see the difference between Park Avenue office and maybe something a block or two blocks over in terms of the stickiness and pricing power from a rent standpoint. So – and you can make similar observations around some of the major CBDs in Europe. So, I think it’s a very, very selective thing and not painting it, the sector, with a broad brush.
Craig Siegenthaler
So, Michael, we don’t talk about this a lot, but I know you invest a lot in technology. And in fact, I think you are the Head of the Technology division.
Michael Chae
Well, we have a Head of Technology. I am not it, thankfully, but I oversee his work and others.
Craig Siegenthaler
So, my question is, how is AI – generative AI, machine learning, blockchain, how is Blackstone using these new technologies today?
Michael Chae
So, well, I would start with I think the notion that I think the world of AI in the future will reinforce the advantages that private markets have over public markets and also that scaled players within private markets have. And in a world – in terms of investing over time, public market investors sort of limited to the four corners of what’s publicly available, access to that data and information will become more and more commoditized. So, the idea of a firm like ours with large scale, longitudinal across businesses, across strategies, rich troves of data, that, I think will be increasingly for us a very potentially rich source of advantage. In terms of how we are employing it or how we plan to employ it, I would say three sort of cornerstones to that. One, picking up on my comment is utilizing it and managing that information over time to – for better insights in our investing. Two would be to utilize these technologies to create productivity benefits in our operations, whether it’s through third-party sort of vended solutions or things we might internally develop. And then finally, investing in – thematically in that ecosystem. And there is obviously a bit of a gold rush going on. We are not in the business of investing in early stage like high valuations in that space. But I would say first derivative or second derivative plays, we are leaning into. And so data centers, which we talked about, we are now one of the leading owners and investors in data centers, direct beneficiary of that ecosystem. We have made a large investment in a structured security in a business called Core, which is a cloud services infrastructure business serving some of the key AI players. So, we are actively focused on investments in the ecosystem at larger scale in businesses that will benefit from supporting that progress, whether it’s a first or second derivative play from that.
Craig Siegenthaler
Great. And with that, we are out of time. So, Mike, on behalf of all us at Bank of America, thank you very much.
Michael Chae
Thanks Craig.