Blackstone Mortgage Trust (NYSE: BXMT) Q2 2025 Earnings Call dated Jul. 30, 2025
Corporate Participants:
Unidentified Speaker
Weston Tucker — Head of Shareholder Relations
Stephen D. Plavin — Chief Executive Officer and President
Jonathan Gray — President and Chief Operating Officer
Michael Chae — Vice Chairman and the Chief Financial Officer
Analysts:
Unidentified Participant
Alexander Blostein — Analyst
Glenn Schorr — Analyst
Craig Siegenthaler — Analyst
Michael Cyprys — Analyst
Bill Katz — Analyst
Dan Fannon — Analyst
Brian McKenna — Analyst
Steven Chubak — Analyst
Benjamin Budish — Analyst
Kenneth Worthington — Analyst
Patrick Davitt — Analyst
Arnaud Giblat — Analyst
Presentation:
operator
Good day and welcome to the Blackstone second quarter 2025 investor call. Today’s call is being recorded at this time. All participants are in a listen only mode. If you require operator assistance, please press 0. If you would like to ask a question, please Signal by pressing Star1. If you’re using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I’d like to turn the call over to Weston Tucker, Head of Shareholder Relations. Please go ahead.
Weston Tucker — Head of Shareholder Relations
Thank you Katie and good morning and welcome to Blackstone’s second Quarter Conference call. Joining today are Steve Schwarzman, Chairman and CEO John Gray, President and Chief Operating Officer, and Michael Che, 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 10Q report in a few weeks. I’d like to remind you 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. For a discussion of some of the factors that could affect results, please see the risk factors section of our 10k.
We’ll 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 offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent on results. We reported GAAP net income for the quarter of $1.6 billion. Distributable earnings were also $1.6 billion or $1.21 per common share, and we declared a dividend of $1.03 per share, which will be paid to holders of record as of August 4th.
With that, I’ll turn the call over to Steve.
Stephen D. Plavin — Chief Executive Officer and President
Good morning and thank you for joining our call. Blackstone reported outstanding results for the second quarter. Distributable earnings increased 25% year over year to $1.6 billion. As Weston mentioned, fee related earnings grew a remarkable 31% year over year and represented one of the best quarters in our history. The strength of these results notwithstanding, a muted backdrop for realizations, reflects the significant expansion of the firm’s earnings power that has been underway as we continue to innovate and scale key growth initiatives. These include our platforms in private wealth, credit and insurance and infrastructure, along with the launch of multiple new funds in our drawdown area.
The firm’s expansion is also powering our fundraising, with inflows reaching $52 billion in the second quarter and 212 billion for the last 12 months, lifting assets under management 13% year over year to a record $1.2 trillion. In addition, there were reports that the US administration may soon issue an executive order that could help open another vast new market for the firm to deliver superior returns and diversifications for investors. The $12 trillion US defined contribution channel the foundation of Blackstone’s exceptional long term growth, of course, is investment performance. We continue to deliver for our limited partners and the second quarter represented the highest amount of overall fund depreciation in nearly four years.
The firm achieved these results in a turbulent quarter for markets which began with the S&P 500 falling 14% amid collapsing investor sentiment due to tariffs, policy uncertainty and geopolitical instability. At the time, we advised patience to allow for trade negotiations to take place and to give tariff diplomacy a chance to work its way through the system despite the significant external uncertainty. We were encouraged by the fundamental strength of the economy, the accelerating pace of technological innovation as a major growth catalyst, and what we were seeing on the ground in terms of declining inflation. We consistently shared our view that inflation was below the Fed’s target when adjusting for lagging shelter costs based on the proprietary data from our large scale portfolio and our unique position in real estate.
As always, the firm’s insights informed our views on investing and we continue to lean into areas where we have high conviction. We invested $33 billion in the second quarter and 145 billion in the last 12 months, one of the most active 12 month periods in our history, setting the foundation for future value creation at what we believe is a favorable time. Our deployment has emphasized areas benefiting from long term secular megatrends such as digital and energy infrastructure, digital commerce, private credit, life sciences and India. These areas have also been among the largest drivers of appreciation in our funds, in particular the enormous need for debt and equity capital to build the infrastructure powering the artificial intelligence revolution has created extremely positive dynamics for our business in real estate.
Specifically, we called the bottom of the cycle 18 months ago and since then we’ve been actively investing across our real estate, equity and debt strategies. We also said it wouldn’t be a V shaped recovery and that is what’s happened. Private real estate markets have appreciated gradually over this period. We are now seeing promising signs with new supply falling sharply, the cost of debt capital coming down and transaction activity picking up. Overall, despite ongoing uncertainties in the environment. There are multiple supportive tailwinds for our business. In terms of the economy, the backdrop remains favorable. With resilient growth, we see inflation remaining muted with the likelihood for an increase in goods inflation, but decelerating wage energy and shelter inflation.
These factors should give the Fed room to lower interest rates over time, which is positive for asset values. In terms of policy, we continue to believe the focus of policy actions ultimately is to support growth. Tax cuts have now been passed into law and a number of trade agreements have been reached, with many more under active negotiation. It remains to be seen how individual negotiations will play out, but the direction of travel is toward more resolutions. As the policy environment settles, we expect transaction activity to benefit, including realizations. Greater clarity will lead to greater confidence for companies, financial sponsors and market participants.
We’re seeing this dynamic start to take effect with the US stock market at record levels, Ma particularly sponsor M&A accelerating and the IPO market reopening. Two weeks ago, we successfully executed sizable IPO in Europe, the first from our private equity or real estate portfolios outside of India in several years. And we are preparing a number of other companies for public offerings over the coming quarters. More conducive capital markets, if sustained, should lead to the acceleration of realizations for Blackstone over time. In closing, we are tremendously well positioned to navigate today’s dynamic backdrop on behalf of our investors.
Our portfolio is in excellent shape, concentrated in compelling sectors and we have $181 billion of dry powder to take advantage of opportunities. Since our founding four decades ago, Blackstone has continued to innovate and advance the frontier of alternative assets. We are never standing still and I believe the best is ahead for the firm and for our investors. With that, I’ll turn it over to John.
Jonathan Gray — President and Chief Operating Officer
Thank you Steve and good morning everyone. This was a terrific quarter for Blackstone. The firm’s distinctive competitive advantages continue to drive us forward in multiple areas, leading to expanding earnings power, as Steve noted. I will highlight three of these areas this morning. First, our robust growth in private credit. Second, our market leading position in private wealth. And third, our strong momentum in the institutional channel. Overall, a cyclical recovery in transaction activity alongside multiple secular growth engines is a powerful combination for our firm. Starting with private credit, Blackstone has built the largest third party focused credit business in the world with $484 billion across corporate and real estate credit, up threefold in the past five years.
Over the same period, revenue from this platform has increased more than fourfold. Today, we offer clients and borrowers a one stop solution across the risk Spectrum with leading businesses in direct lending, leveraged loans, real estate lending, asset based finance and numerous forms of investment grade private credit. The scale and breadth of our platform, distinctive origination capabilities, connectivity with borrowers across the market and our open architecture multi client model in the insurance channel are significant advantages in insurance. Specifically, our decision to be an asset manager for insurance companies rather than becoming one positions us well to address the $40 trillion global insurance market.
Today we manage over $250 billion on behalf of insurers across private credit, liquid credit and other strategies. Up 20% year over year. Our platform now includes 30 strategic and SMA relationships and we continue to add more. Two weeks ago we announced a partnership with leading UK based insurer and the country’s largest asset manager, legal and general in which we’ll provide investment grade private credit solutions to support their rapidly growing pension risk transfer and annuities businesses. We will also work together to develop public private credit products for the UK wealth and retirement markets. We’re targeting up to $20 billion for this partnership in the next five years.
Our expansion in the insurance channel is powering tremendous growth for our private investment grade platform specifically with AUM up 38% year over year to $115 billion in the quarter. As always, the key is investment performance. Since the start of last year we placed or originated $68 billion of credits for our private investment grade focused clients rated a minus on average which generated approximately 190 basis points of excess spread over comparably rated liquid credits. Stepping back, Blackstone’s innovation in private credit is allowing many borrowers to access this market for the first time while dramatically widening our aperture to invest.
For example, we previously discussed a very substantial opportunity emerging with investment grade rated corporates illustrated by the bespoke solutions we designed for Rogers Communications and EQT Corporation. We closed the $5 billion Rogers investment last month alongside Canada’s preeminent pension plan. As co investors, we believe few other investment firms could have executed this transaction given its size, complexity and the depth of relationships needed. Blackstone has become a trusted mission critical solutions provider to many of the world’s leading corporations and we expect more of these type of partnerships over time. Turning to private wealth where we continue to advance our market leading position in this vast channel.
$140 trillion including mass, affluent and high net worth individuals. A new generation of investors is gaining access to the benefits of alternatives which is a development led by Blackstone. We started raising private wealth capital 23 years ago and established a dedicated organization nearly 15 years ago. Growing AUM to almost $280 billion today, by far the largest private wealth alternative platform in the world. Each of our flagship US Perpetual vehicles is the largest or amongst the few, largest of its kind. Revenue from These vehicles exceeded $700 million in the second quarter alone, compared to approximately $50 million in the same quarter five years ago.
As with credit, our scale is a major advantage in the Wealth Channel alongside our extensive network of relationships with advisors and distributors, our broad menu of high performing products and the power of our brand which is built on that performance. In the second quarter our sales in the wealth channel increased 30% year over year to $10 billion. BCRED led the way raising $3.7 billion underpinned by performance 10% net returns annually since inception. EXP raised 1.7 billion in the second quarter bringing its NAV to $12.5 billion in only six quarters. With an annualized platform net return of 17% for its largest share class, B REIT had its best quarter of regular way fundraising in two and a half years in the second quarter at $1.1 billion.
While repurchases continued on their downward trajectory. VREIT’s highly differentiated portfolio positioning has led to 9% net returns annually since inception eight and a half years ago, approximately double the public REIT index on a cumulative basis including over 3% year to date for its largest share class. This has resulted in B reit’s second consecutive quarter of generating fee related performance revenues for the firm. Finally, BX Info saw healthy sales of roughly $600 million in the quarter despite still only being on a small number of distributors. We launched bmax, our multi asset credit product in May which provides individual investors greatly expanded access to the private credit universe and we’ll be ramping up distribution over the coming quarters along with other products in development and our previously announced alliance with Wellington and Vanguard.
We are quite excited about our continued prospects in the private wealth channel moving to our institutional business where we are seeing strong momentum across key open ended and drawdown strategies in this channel. Again, the advantages of our brand scale, breadth of products and of course our long term investment performance position us extremely well in an environment where limited partners are consolidating their manager relationships favoring the largest and strongest firms in infrastructure. Our dedicated platform continues on its powerful growth trajectory. AUM rose 32% year over year to $64 billion supported by remarkable investment performance 17% net returns annually to the Co Mingle Bip strategy since inception, our multi asset investing business DXMA reported its fastest growth in nearly seven years, with AUM up 13% year over year to a record $90 billion, again led by performance.
Q2 marked the 21st consecutive quarter of positive composite returns for BXMA’s largest strategy in our drawdown fund area, we raised significant capital in the second quarter. We closed an additional $3.5 billion for our new private equity Asia flagship, bringing the total raised to date to $8 billion, already 25% larger than its predecessor. And we expect to exceed our original $10 billion target in our $91 billion secondaries business, which has doubled in the last five years. We raised additional capital for our fourth infrastructure vehicle bringing it to over $5 billion, nearly 40% larger than the prior vintage.
And we launched fundraising for our new P Secondaries flagship targeting at least the size of the prior $22 billion fund with a first close expected in the fourth quarter. Other strategies we are raising include life sciences, opportunistic credit, GP stakes and tactical opportunities. Overall, LPs continue to recognize the substantial benefits of investing in private assets despite the cyclically slow realization backdrop. Looking forward. Importantly, we believe the deal making pause is behind us. As Steve noted, the environment we are seeing is emerging from I’m sorry. As noted, the environment we see emerging of lower short term interest rates, less uncertainty and continued economic growth combined with a pent up desire to transact is the right recipe to reignite M and A and IPO activity for Blackstone.
We have the largest forward IPO pipeline since 2021. These trends should be very favorable for dispositions exiting this year and into next year. In closing, we are highly optimistic about the road ahead supported by multiple powerful engines of growth. Blackstone’s value proposition for both our limited partners and our shareholders is stronger than ever. With that I’ll turn things over to Michael Chen.
Michael Chae — Vice Chairman and the Chief Financial Officer
Thanks John and good morning everyone. We previously outlined the building blocks for the favorable step up in the firm’s earnings power that has been underway. These included the onset of management fees for multiple drawdown funds, exiting fee holidays, the seasoning of perpetual capital strategies and their expanding financial contribution both in terms of NAV based management fees and recurring fee related performance revenues, robust growth of our credit insurance business and our healthy margin position. Firm’s second quarter results perfectly illustrate these building blocks coming to fruition while at the same time our significant embedded potential for net realizations continues to build.
I’ll first review financial results followed by investment performance and the forward outlook. Starting with results, Steve and John highlighted the continued scaling of the firms platforms in key growth channels and the powerful effect that is Having on assets under management inflows and fre. Total AUM increased 13% year over year to $1.2 trillion, underpinned by inflows of $212 billion over the last 12 months, while fee earning AUM rose 10% year over year to $887 billion. Base management fees increased 14% to a record $1.9 billion in Q2, representing the third consecutive quarter of double digit growth. Transaction and advisory fees rose 25% year to year with a record contribution from our capital markets business related to the firm’s significant investment activity in the quarter, including in private credit and infrastructure fee related performance revenues reached $472 million Q2, up over two and a half fold from last year’s second quarter, generated by eight different perpetual strategies including VCREDIT and VXSL in credit, VXPE and private equity, VIP and infrastructure, VREIT and Real Estate, along with smaller contributions from other strategies.
These drivers taken together lifted total fee revenues to $2.5 billion in the second quarter, up a remarkable 27% year over year and up 14% sequentially from Q1. Coupled with the firm’s strong margin position, fee related earnings rose 31% year over year to $1.5 billion in the second quarter or $1.19 per share. Distributable earnings increased 25% year over year to $1.6 billion in the second quarter for $1.21 per share. For the LTM period, DE rose 26% to $6.4 billion or $5.00 per share. Despite net realizations remaining at muted levels leading to 26% growth in the dividend to $4.26 per share.
This equates to an attractive 2.4% yield on the current share price, double the yield of the S&P 500. The forward outlook is favorable as I’ll discuss further in a moment. Moving to investment performance, our funds generated strong overall appreciation in the second quarter, the highest amount in nearly four years. As Steve noted, despite the volatile environment, the corporate private Equity funds appreciated 5.1% in the quarter and 17% in the last 12 months. Strength was broad based despite the macro uncertainties at the outset of the quarter. Our operating companies generated high single digit year over year revenue growth along with resilient margins.
In addition to corporate private equity, our other PE strategies delivered strong returns in the quarter. The tactical opportunities funds appreciated 4.1% and 14% over the LTM period. The SP secondaries funds appreciated 6.6% in the second quarter in the context of a well positioned portfolio that benefited from sizable recent investments executed in favor of prices. The sp funds appreciated 11% for the LTM period. Our dedicated infrastructure platform appreciated 2.9% in the second quarter and 19% for the last 12 months. Notwithstanding a decline in the public portfolio in Q2 of market turnings, with appreciation underpinned by continued significant momentum of data centers along with other digital infrastructure, power and transportation related holdings in real estate.
Values were largely stable overall in the second quarter with appreciation in the opportunistic funds in B reit. Led by strength in data centers within the Core plus platform, the BPP funds declined modestly, driven by our Life Sciences office portfolio which has been impacted by new supply coming online and increased tenant caution. Overall, our real estate platform remains well positioned with data centers, logistics and rental housing comprising approximately 75% of the global equity portfolio, nearly 90% of B revenue in credit. Our non investment grade private credit strategies reported a gross return of 3.0% in the second quarter and over 13% for the LTM period.
Default rate across our 2000 plus non investment grade credits remains in the area 50 basis points over the last 12 months with no new defaults in private credit in the second quarter. BXMA reported a 2.8% gross return for the absolute return composite in Q2 and 12% for the last 12 months. Notably, the XMA has delivered positive composite returns in each of the past 27 months, a remarkable achievement in liquid markets in any case, and particularly so given the historic volatility that has characterized this period. One final note on returns our dedicated life Sciences business reported outstanding performance again in the second quarter, appreciating 6.7% and 27% over the LTM period.
The quarter benefited from positive developments for a number of investments in the portfolio. Our Life Sciences platform provides investors with exposure to innovation in an exciting growth area in a way that we believe is largely uncorrelated to broader public markets. Our prior $5 billion flagship has achieved annualized returns of 20% since inception net of fees. Overall, the strength of the firm’s investment performance continues to power our growth. Turning to the outlook where as you’ve heard this morning, there is a very positive multi year picture for the firm. First, in terms of fre set up for this high quality earnings stream is favorable with a few drivers to note that will affect the second half this year.
We expect base management fees to continue on a strong positive trajectory with the rate of year over year growth in the second half resembling that of the first half on transaction fees. Following a very strong first half, we would anticipate a lower baseline in the second half with potential upside from rising transaction and market activity. Looking forward to 2026 and beyond, there’s robust structural momentum in FRE driven by the firm’s multiple pensions of growth. In terms of net realizations. In the second half of this year, we expect to close the sale of the firm’s 6% stake in resolution Life in connection with the sale of the company to EPOD Light.
With respect to fund dispositions, we believe we’re entering a more constructive environment as Steve and John discussed, and that we’re well positioned to see an acceleration in net realizations exiting this year and moving into 2026. Performance revenue eligible AUM in the ground a record $604 billion in quarter end up 14% year over year. Meanwhile, net accrued performance revenue on the balance sheet firm’s store of value grew sequentially to $6.6 billion or $5.3 per share. These are positive indicators of future realization potential. In closing, the firm continues on its path of extraordinary long term growth powered by our brand investment performance and culture of innovation against the backdrop of of significant secular tailwind.
As always, we remain totally focused on delivering for our investors. With that, we thank you for joining the call and would like to open it up now for questions.
Questions and Answers:
operator
Thank you. As a reminder, please press star1 to ask a question. We ask that you limit yourself to one question to allow as many callers to join the queue as possible. We’ll go first to Alex Bloestein with Goldman Sachs.
Alexander Blostein
Thank you. Good morning. Appreciate the question. I wanted to start with a question around credit. Obviously incredibly powerful driver for you guys and the industry broadly. It’s been fueling growth for a couple years now. At the same time, we’re clearly seeing compression in credit spreads and I’m curious how that’s playing into your client conversations where the premium to liquid market is still there but perhaps might start narrowing. There’s more capital coming in there. Any conversations around demand for private credit, whether it’s from retail channels or institutional channels, and any implications on fee rates longer term as we think about this product continuing to grow. Thanks.
Jonathan Gray
Great question, Alex. I would say on the credit the demand remains extraordinarily robust and we’re seeing it broadly non investment grade investment grade credit, which as you know, is early days. We’re seeing it in the United States and we’re seeing it around the world. And I would say clients are recognizing that base rates have come down, short rates are likely to come down, more spreads have tightened gradually. But what I think the clients are enthused about, as we are as well, is that enduring premium between the liquid markets and private credit. And that’s what they’re focused on.
And so long as that continues to exist, I think this makes this a very attractive space. In the second quarter for our insurance clients. We delivered that a rated premium of 185 basis points, 190 over the last 18 months. So that’s really what the clients are focused on. And to me, that’s the key to this. That’s why I think it will continue to grow. Also, I think there are some areas here where private credit has a unique capability. Some of these corporate solutions we’ve done with Rogers and EQT Corporation, which really work much better in a private format and then tied to this enormous investment spend around data centers and energy infrastructure, again, that’s harder to bring to the public markets and it lends itself to private credit.
So I would say today we continue to see very strong demand. The business, you can see it in the numbers in terms of the rate of growth, 20% insurance, 16% overall between credit, insurance, corporate and real estate debt. It feels to us like this will continue. And the key is, yes, absolute returns may come down a bit, but the relative premium for private credit and what private credit can do and how it can solve solutions for borrowers, that continues. So I’d say our optimism looking forward in this space and doing it the way we do it, which is purely as an investment manager with no capital risk and that open architecture which allows us to serve a broader universe. We like all of that and we have a lot of confidence l ooking forward to. Thank you.
operator
Thank you. We’ll take our next question from Glenn Shore with Evercore isi.
Glenn Schorr
Hi, thanks. That’s a good lead into this question because I feel like everything is going pretty darn good at Blackstone with the exception of the real estate in general in this environment. So the question is maybe could you give us the mark to market of expected recovery in terms of what’s going to drive it, meaning pricing, financing, deal flow, client flows to the asset class. Are we all in on waiting on lower rates? What is the incremental over the next, say, year or two that’s going to drive demand for your real estate products? Thanks, John.
Jonathan Gray
Thanks, Glenn. I would say the good news now is it’s all about a question of, of when, not if, because the building blocks for this recovery are clearly coming into place. The first and most important one is new supply coming down. And that takes time to work through the system because you start a project two, three years ago, then it comes online. It’s excess capacity now because of the 2/3 decline in building in the US from the peaks in terms of logistics and apartment construction. You’re going to begin as we get towards the end of this year and into next year to have a much more favorable supply demand dynamic.
The other area is cost of capital. Some of its base rates, which you highlighted and obviously the Fed cutting rates will be helpful. But some of it spreads and those have come back now back to pre Liberation day levels. They’re down significantly from the wides in 2023. And you’re beginning to see those early green shoots in terms of a faster recovery. Transaction activity for smaller assets has definitely gotten better. You see that for both apartments and logistics in the US there’s a little more liquidity in Europe now as well. And that to me is an important sign.
And then on the customer side, which you referenced, there’s definitely now more openness to allocating to the space. We’re having more conversations there. We raised some capital for a dedicated core plus real estate industrial strategy of a couple billion dollars. We had, as we’ve seen, we announced the best quarter of fundraising regular way in B REIT that we’d had in two and a half, three years. So it’s the early signs of this recovery. If rates come down faster, obviously the recovery is quicker. If they don’t, then new supply will continue to be muted and then the recovery will take a little more time.
But ultimately we know the path of travel. It’s not as if we’re going to disintermediate apartments or last mile warehouses. So I’d say our confidence on the ultimate outcome high and we’re getting closer and closer to that tipping point where real estate will start to move. We haven’t quite gotten to that escape velocity yet, but it’s feeling better and better given some of these key things. The cost of capital and the decline in new supply are very supportive as you start to look forward. Thanks, John.
operator
Thank you. We’ll go next to Craig Steigenthaler with Bank of America.
Craig Siegenthaler
Hey, good morning, Steve, John. Hope everyone’s doing well. We had a question on strategic partners. So in your secondary fund, returns accelerated in 2Q and there’s a one or two quarter delay there too. So maybe they should get even better with endowments and a few Asian institutions selling their pea stakes and discounts wider. So I Want to see if you could update us on the investment return and fundraising outlook for Secondex?
Michael Chae
Hey Craig, it’s Michael. On the return portion. As I mentioned in my remarks, it was a combination of factors that really drove pretty robust returns. It does reflect the gains from very significant large new purchase, one of our biggest secondary deals in history. And that had a beneficial effect. And then in terms of the underlying funds, we had good appreciation which contributed to that return as well. And then there was a minor portion of actually currency benefits as well. So it’s a combination of those factors. But I think what broke really kind of outsized returns in the quarter is the benefit of that very large exciting deal that we did. I closed in the quarter.
Jonathan Gray
And I would say on the broader segment, it’s really in a sweet spot today. Obviously there are investors who want liquidity deal volume. Investment volume I think for us is up something like is it 40%, I want to say roughly in the first half of the year over last year. And the pipeline looks pretty good on the deployment front. The returns have been very strong over time in this area and that’s making it attractive to investors. We announced the progress we’ve made on the Secondaries infrastructure fund. We’ve just started on the flagship Secondaries private equity fund. We expect we’ll get a really good response given the performance over time.
So this is an area at the firm. It’s doubled over the last, I guess, five years. I expect that it will continue to grow quite a bit. And it’s another reason why Blackstone has this exceptional platform. Other firms have strength in one area or another. There are just so many areas. And so when we travel around, I personally travel around a ton. Talk with CIOs around the world. The ability to talk about a range of solutions, a range of investing areas. They may be today more cautious on real estate or regular way buyouts, but they’re excited about Asia private equity.
They love what we’re doing in secondaries. That’s really the power of Blackstone. It’s true in the institutional channel, it’s true in the retail channel. And secondaries is a powerful example.
Craig Siegenthaler
John, Michael, thank you.
operator
Thank you. We’ll take our next question from Michael Cypress with Morgan Stanley.
Michael Cyprys
Hey, good morning. Thanks for taking the question. I just wanted to ask about 401 and the retirement opportunity set. I was hoping you could maybe elaborate a bit on how you see the path unfolding for alts accessing the 401k retirement title. It seems that target date is perhaps maybe the most likely Vehicle. Just curious to get your views on that. How meaningful of an allocation could this be within the target date vehicle, not just for alts, but also considering fixed income replacement and other types of strategies that you have or may have in the future and just more broadly how you see this playing out and talk about some of the steps that you guys are taking. Thank you.
Jonathan Gray
Thanks. Well, it starts with we’ll wait and see if there is an executive order and then ultimately rulemaking. So I think we all need to be patient here. But as we’ve talked about in the past, we think this is compelling for individual investors today in the defined contributions world. The access to alternatives, both the returns and diversification benefits. So we would expect this is going to happen at some point over time. But again, we have to wait and see in terms of where it will happen, the size, I think we’ve got to wait. I do think it’s logical that it happens more in the target date funds.
It’s obviously more appropriate for somebody earlier in their lifespan as opposed to somebody just on the cusp of retirement. I think the target date funds is where we’ll see this initially take hold. Obviously it’s a very large market and for us specifically the fact that we have created scale perpetual products that have track records that can absorb large amounts of capital, that is a real competitive advantage. I do not believe drawdown funds will be the structure given the complexity of those for defined contributions. And so I think it’s going to be about large scale perpetuals.
It’s going to be about firms with brand names and the right legal approaches and track record that capital can get allocated to. So obviously the dollars in the space are large. Our positioning in the space I think will be fairly unique. And the range of offerings we have across asset class is again pretty unique to be a partner with distributors in this space. But we’ve got to wait and see is there an executive order, how it rolls out? It will take time, but I do think there is a potentially significant opportunity here.
Michael Cyprys
Great, thank you.
operator
Thank you. We’ll take our next question from Bill Katz with TD Cowan.
Bill Katz
Great. Thank you very much for taking the question. So just coming back to some of. Your forward looking guidance. Can you unpack a little bit how you sort of see interplay for the. Fre margin, very strong quarter this quarter. And then relatedly as we think through. The realization up cycle, how do we think about the payout rate on that? That’s been pretty steady in the mid-40s. Should we assume that that’s still the Same kind of payout going forward. Just trying to think through the overall earnings gearing here. Thank you.
Michael Chae
Hey Bill, it’s Michael. Thank you for the question. Look on the margin outlook and dynamics. We’re obviously pleased with performance year to date. It’s the result of healthy double digit management fee growth and strong underlying margin position. We also benefited from higher fee related performance revenues and transaction fees which carry attractive incremental margins. I think in the second half, you know, a few variables to consider. There’s, you know, there is a level of sensitivity to fee related performance revenues as we’ve commented in the past. There’s as we’ve also said seasonally higher OPEX in the second half of the year.
But I think in that area we previously pointed to low double digit growth in 2025 overall and we’d reiterate that view. But look overall for the fiscal year we’re tracking favorably against the initial view we gave in January of sort of stability as a guidepost. But as I mentioned there’s always a few variables that can ultimately impact this. But long term we feel obviously very good about our positioning and the ability to generate operating leverage on realizations and the sort of performance fee margins and comp ratios. Yeah, I think broadly speaking you should expect stability that varies with the mix of, you know, funds and strategies that are the source of farms revenues in a given quarter.
We have had the ability to, you know, manage the mix of compensation between fee compensation and performance revenues and we’ll still be able to do that, which I think will be beneficial to fre margins directionally and might trade off performance revenue margins somewhat as a result. But I think that’s more directional at the margin. But we feel very good about our sort of our levers to drive margins across the pnl. Thanks Bill.
operator
Thank you. We’ll go next to Dan Fannon with Jefferies.
Dan Fannon
Thanks. Good morning, John. Wanted to follow up on your comments around the deal making pauses behind us. Just get a little bit more color on your confidence around this. We’ve obviously been here before and waiting. For activity to pick up but you obviously sounded much more confident here this morning. So just would love a little more color there.
Jonathan Gray
Well, it’s a fair question because I think we expressed some confidence similarly at the outset of the year and then we had the tariff issues and that slowed things down. You know, you can feel things sort of the tumblers falling into place. It’s the combination of equity markets recovering to record levels. It’s debt spreads now back to the pre liberation day Tights. It’s general business confidence, particularly for businesses away from manufacturing and retailing who are in the teeth of some of the issues around goods and the cost of those goods. And so there’s overall a more constructive environment.
There’s also a more favorable regulatory environment than there’s been in a few years of course for M and A. And when you just look at the levels of M and A and IPO volume over the last three plus years, it’s running about two thirds below historic levels as a percentage of market cap of the stock market. So there’s just a lot of pent up demand in the system. And then when we look at our proprietary data, you know, we’ve got the busiest pipeline we’ve had since 2021 of potential IPOs. We talked about getting one done in Europe here a couple of weeks ago.
And then deal screenings, you know, on the BXI, the credit side up 50%, new deals sort of coming in the door that we’re looking at versus the end of the year. So lots of things are coming together. Yes, you need a level of terraforma. But if this holds, I do expect we’ll see a step function increase in transaction activity. That of course on the realization side, as Michael noted, takes a little bit of time. It’s like moving the plane out to the Runway before it ultimately takes off. But those signs of getting companies public, public companies becoming more active debt markets. There’s been a ton of refinancing activity as cost of capital comes down in the last few weeks. All the things are coming into place and that’s what’s giving us his confidence y ou here.
Dan Fannon
Thank you.
operator
We’ll take our next question from Brian McKenna with citizens.
Brian McKenna
Okay, great. Good morning everyone. So real estate performance eligible AUM totals around $200 billion today. Net accrued performance fee stands at less than a billion dollars today. So I’m curious how much of the $200 billion is currently generating performance revenue? And then is there a way to think about how much of this AUM call it is 10% away from the hurdle. I’m just trying to get a sense of the trajectory of accrued performance fees in real estate from here as performance and underlying trends begin to normalize.
Michael Chae
Thanks for the question. Yeah, as you mentioned, the balance of performance eligible dollars in real estate, it’s over 200 billion. I would just frame it that about 60% of that is above their respective hurdles in terms of the components in breadth and opportunistic. Importantly as it relates to carries, you know, the vast majority, you know, 80% plus of the AUM is above hurdle. And then as I said, that really represents the bulk of our accrued carrying real estate. 100% of B REIT is also above that hurdle. So that’s sort of the structure of it. And so I think we’re, you know, as John just referenced, you know, with time we expect the realization cycle to accelerate, probably more in private equity before real estate than ultimately in real estate and in those breadth funds as it relates to net realizations. That’s the positioning relative to hurdles, which is a favor. Great.
Brian McKenna
Thanks, Michael.
operator
Thank you. I’ll take our next question from Steven Cheback with Wolf Research.
Jonathan Gray
Hi, Steven. Good morning. Katie. It sounds like Stephen. We lost him.
Steven Chubak
No, Weston, I’m here. If you can hear me. Sorry, I was muted.
Jonathan Gray
Good morning, Steven.
Steven Chubak
My apologies. Good morning, everyone. Regarding the BMAX launch, I was hoping you could speak to your confidence level as to whether this could scale at a similar pace to some of your other retail vehicles. Just trying to gauge the early reception. Any additional color you can offer on some of the retail products in the pipeline that were referenced in some of the earlier prepared remarks.
Jonathan Gray
Sure. I think at bmax it will take some time. We’ve launched this in a little bit of a different way in the RIA channel to start, we’ve gotten a good reception. But this I think will. Because we have a number of interesting things in the marketplace today. I think this is obviously a little different as an interval fund and what we’re finding with new platforms in the marketplace, people want to see the track record start to grow and build because this is easier to access on the interval fund basis, I think the ultimate potential is quite significant.
But I would expect to ramp up to 20, take a bit of time. If you look at our track record, of course, in the flagship products, we’ve had great success. Obviously, B Read and BCRED BXP in just 18 months is remarkable where it’s gone to be essentially the market leader in the space in a short period of time. Our infra platform we talked about is on a small number of distributors. We have a European credit platform that’s picking up some momentum. So, you know, the conversations with our wealth partners is incredibly positive and sort of the Blackstone positioning in that space because of the track record we have, the breadth of products.
The fact we’ve been at it so long is really special. I think you’ll continue to see us introduce new products and I think we’ll continue to get a good reception and it’ll be increasingly on a global basis. Each product will have its own sort of pace to how it picks up. And part of it is where we decide to launch these based on a whole variety of considerations, but the overall path is pretty darn good.
Steven Chubak
Great. Thanks for taking my question.
operator
Thank you. We’ll take our next question from Benjamin, but with Barclays.
Benjamin Budish
Hi, good morning and thank you for taking the question. I wanted to ask something kind of specific on your fee related performance revenues. It looked like the performance in the quarter or at least the outperformance versus a lot of expectations was driven by private equity, which I would assume is more BIP than people were expecting. I know that’s one that can be a bit lumpy based on the timing of fundraising and deployment with the big three year crystallizations, but any color you could share in terms of what FRPR can or might look like over at least the next couple of quarters would be helpful just for modeling purposes. Thank you.
Michael Chae
Yeah, I think just as it relates to bip, which your question. And I t hink we at the end of last year in the last couple quarters gave a sense of the shape of the year after that very large crystallization in the fourth quarter. You know, generally as you know, infrastructure subject to will be subject to more frequent crystallizations related to the layering in of new investors and the open ended fundraising over time. In the second quarter we did have nearly $100 million of revenues. Just to actually give you some specifics around that in the quarter. We’d expect about half that in the next quarter from a scheduled crystallization from the institutional fund and then nothing in the fourth quarter from the institutional fund.
We do expect a modest amount from VXN for the private wealth infrastructure product from its first crystallization in the fourth quarter, which will then be quarterly thereafter, which was the VXP structure when it started as well. So there’s some fairly granular sense of infrastructure and feedback performance for the balance of the year.
Jonathan Gray
I would just say generally the layering of these various products will be powerful. To earnings power over time.
Benjamin Budish
Okay, thank you for that.
operator
Thank you. We’ll take our next question from Ken Worthington with J.P. morgan.
Kenneth Worthington
Hi, good morning. Thanks for taking the question with regard to legal in general. So thanks for the highlights. You mentioned 20 billion over the next five years. Is this based on new products expected to be developed and distributed or is there an IMA or more immediate asset management element of the partnership as well? And then last quarter you mentioned Wellington and Vanguard. Can you give us an update on product development, how that’s progressing and when we might see those products start to hit the market.
Jonathan Gray
Sure. With lng, it’s a partnership focused around credit and insurance. I’d say a couple things. $20 billion is ultimately our aspiration here with them. I’d say it’s a combination of things. The main element of it will be managing investment grade private credit for their pension risk transfer and annuities business. Something obviously we do for large clients here and SMA clients. So that’s a relationship to make them even more competitive in that marketplace in the uk. And then we also said we’re going to try to do some things together in wealth, creating some products together for the UK market and then potentially in retirement there and defined contributions again with our credit products.
So it’s broad range. They are the leading insurer and asset manager in that market. We were very excited to be able to partner with a company of that quality and scale. And there’s a real entrepreneurial energy now with the CEO Antonio there. And we’re excited about what we can do with them together. On Vanguard Wellington, there’s a limit to what I can say. I think legally at this point we can say that Wellington has filed for our first product together. Obviously that process of SEC approval will take some time, but we’re excited, as we talked about on the previous call, just the idea of bringing our best in class private capabilities with Vanguard and Wellington best in class and active and passive debt and equity.
And we think for a portion of the wealth market this could be particularly attractive. Just sort of one stop shopping. But I can’t really speak to specifics other than this one filing that’s been made.
Kenneth Worthington
Great, thank you.
operator
We’ll take our next question from Patrick Davitt with Autonomous Research.
Patrick Davitt
Hey everyone, Good morning. You mentioned the life sciences performance and the divergence between PE and real estate and have obviously built a great business there. But there seems to be a fairly significant cut to government research and science funding coming through the pipe. Do you have any early thoughts on how much exposure your portfolios could have to that and does that cut in funding change your view on the life sciences investment opportunity? From here? Thank you.
Jonathan Gray
So it has certainly added to the uncertainty in the space. You know, Michael talked a little bit about the on the tenant demand side in our life science office area. I think the key thing though is there is just enormous innovation happening in life sciences that the AI is likely to accelerate that that there are huge capital needs both from the pharmaceutical companies who want to find partners to accelerate Their phase three process for products as well as for smaller life science companies who don’t want to issue equity. And it is definitely a marketplace where we think we have a pretty unique offering and capability.
It is possible that we could see some changes in terms of reimbursements and MFNs outside the United States. But overall the market is quite substantial. The need for these products is substantial and the number of groups with expertise at scale to do these partnerships is limited. So we still see a very big investment opportunity here.
Michael Chae
Final thing I’d add in Life Science Office is, as John mentioned, the supply coming down in real estate applies personality, applies to this sector as well. Starts are down something like 80% plus since sort of their peak a few years ago. So that is ultimately going to be a real benefit for the sector.
operator
Thank you. We’ll take our final question from Arnaud Giblot with BNP Peribal.
Arnaud Giblat
Good morning. One quick question on bxp, please. So there’s clearly been a lot of appetite for this product. I’m just wondering how you’re thinking about sizing of this product in relation to capacity to deploy in retail in particular, as you might be thinking about advantage diversification. How should we be thinking about the potential divergence in construction between the SWOLF product and your flagship? Thank you.
Michael Chae
Well, I would say at Blackstone our greatest strength has always been a capacity to deploy and do it in a way that delivers strong returns. We designed BXP with the idea that this is a product that takes in capital on a regular basis, as we experienced with B REIT and bcred.
And therefore we wanted the widest aperture possible so the product can invest in the us, Europe and Asia. It can do it in control private equity, minority hybrid equity, secondaries, life sciences, growth, opportunistic credit. We actually sacrificed a bit in terms of the market potential by making it only eligible to qualified purchasers, so that we had the flexibility to deploy capital across these variety of areas. To date, the performance has been exceptional. And I just think at Blackstone we’re able to find lots of opportunities serve our institutional clients, which you were asking about, which obviously is critically important both in terms of the main funds and also their co investment desires, but also create a whole new range of additional investment opportunities across the firm.
So I feel very good about our ability to deploy capital. We’ve certainly been able to show across credit. We did it in real estate. We have the capabilities to scale up and this is obviously beneficial in the wealth channel as it grows. It’s one of the things that really differentiates Blackstone as a firm.
operator
Thank you. That will conclude our question and answer session. At this time, I’d like to turn the call back over to Weston Tucker for any additional or closing remarks.
Weston Tucker
Great. Well, thank you everyone for joining us today and look forward to following up a fter the call.
operator
That will conclude today’s call. We appreciate your participation.