Blackstone Inc. (BX) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Blackstone Fourth Quarter and Full Year 2015 Investor Conference Call. My name is Catherina and I’ll be your coordinator for today. At this time all participants are in listen-only mode. Later, we will facilitate a question-and-answer session [Operator Instructions]. I would now like to turn the presentation over to your host for today’s call, Mr. Weston Tucker, Head of Investor Relations. Please proceed.

Thanks Catherina. Good morning and welcome to Blackstone's fourth quarter 2015 conference call. I'm joined today by Steve Schwarzman, Chairman and CEO; Tony James, President and Chief Operating Officer; Michael Chae, Our Chief Financial Officer and Joan Solotar, Head of Multi-Asset Investing & External Relations. Earlier this morning we issued the press release and a slide presentation illustrating our results which are available on our website. We expect to file our 10-K report later next month. I’d like to remind you that today's call may include forward-looking statements, which by their nature are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update any forward-looking statements. For a discussion of some of the risk that could affect the firm's results, please see the Risk Factors section of our 10-K report. We will refer to non-GAAP measures on this call. The reconciliations you should refer to the press release. I would also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any Blackstone funds. This audio-cast is copyright material of Blackstone and may not be duplicated, reproduced or rebroadcast without our consent. So, quick recap of our results. We reported Economic Net Income or ENI per unit of $0.37 for the fourth quarter and a $1.82 for the full year which were down from the prior year from the prior year periods due to lower appreciation across some of the funds. Distributable earnings were $878 million in the quarter or $0.72 per common unit and $3.3 per common unit for the full year 2015. That full year amount is a record and is up sharply from 2014 due primarily due to great mix, greater [indiscernible] in our private equity and real estate businesses. We will be paying a distribution of $0.51 per common unit to unit holders of record as of February 8, which brings us to $2.73 paid out with respect to 2015. And that equates to 11% yield on the current stock price, which remains one of the highest of any large firm in the world. With that I'll turn the call over to Steve.

Good morning and thank you for joining our call. 2015 was a year in which Blackstone achieved several milestone including reaching records assets under management of $336 billion. Continued expansion of our leadership position in every business world has illustrated by record capital raised of $94 billion and record capital invested of $32 billion, both stunning. Our best year ever for capital return to our shareholders at $2.73 per common unit as Weston just mentioned and of course, we celebrated our 30th Anniversary. We entered 2016 with great confidence in our business and its prospects. The public markets however have certainly had a challenging start to the year with the narrative that’s been dominated by concerns over global growth, energy prices, high yield credit, China and the U.S. Presidential elections. Best use have been caught in the down cycle of pessimism and over sold conditions as markets have corrected. In times of turbulence, having locked up capital can be a tremendous performance advantage both in the ability to deploy scaled capital at very good prices and to hold our investments during inevitable downturn. As always possible that a market correction becomes something more significant, we at Blackstone do not see a recession in the U.S. We do believe that global GDP growth is slowing, we’ve seen a slowdown within certain sectors and regions in our global portfolio as a result. On balance however, our portfolio companies remain in terrific shape, our private equity company has grew EBITDA in the fourth quarter versus the declines in the broader market which we witnessed now for several quarters running. And in real estate our properties are reporting healthy fundamentals across the board including mid-single digit growth in office rents in the U.S. and U.K. and continuing albeit somewhat slow in hotel RevPAR growth. And our company CEOs mostly expects solid growth in 2016. Overall, our investment returns were quite strong in 2015, you’d never looking at our stock, but they were quite strong with most of our funds well ahead of global markets. Our corporate private equity funds for example, appreciated 7.4%, well our tactical opportunity funds were up 9.3% and strategic partners or secondary business rose 19.4%. Our real estate in our opportunistic funds appreciated 9.7%, well our newer core plus platform was up 19.1%. Our product due for a limited partners as a group dramatically have performed the S&P total return of 1.4%, typically by multiples of 5x to 7x and exactly what something you should be punished for. We delivered these results despite the ongoing public pressures in our public stock portfolio which are baked into these returns. Importantly a locked up structure of most of our funds means that we’re never fore sellers and can wait until markets improve before exiting public positions. Having 10 year funds for example, means that things that happen over a few months or even a year don’t impact us, the way they do other investors. We don’t have redemptions in our drawdown funds. And even in our liquid funds capital flows remain healthy. Our hedge funds solutions arrear for example reported strong net inflows in 2015, including in the fourth quarter when we typically see seasonally higher redemptions and reason for that is, we’ve outperformed public markets in that area as well, quite significantly. We’re seeing strong demand for credit products as high yield spreads have capped by hundreds of points and liquidity has declined. Our credit business overall is benefiting from these trends with great demand for financing much higher rates of return than six months ago and we’re deploying much, much more capital as a result. In fact, the fourth quarter was the record quarter deployment for GSO as it was for our private equity and real estate segment. GSOs existing investments are being negatively impacted on an internal mark-to-market basis, but that doesn’t reflect the inherent credit quality of the overall portfolio or its ability to have principal returned in interest paid. Blackstone stock as I preference has been under severe pressure and the alternative asset management group has been one of the hardest hit in terms of stock price declines. Despite this I’ve every confidence in our firm and our current position. Well, our stock has declined 40% from market high levels last year, I think it’s important to ask what’s different for Blackstone today versus early last year when the stock was significantly higher? What has happened to our business? Well, we’re 16% larger in terms of AUM then at year end 2014 with sharp growth in every single business. The $94 billion we raised last year is the size of many of our peers and exceeds the annual fundraising of our next four largest public competitors combined. We invested over $32 billion in our drawdown funds and committed another $6 billion to investments that haven't closed yet. That is by far a record for us with the heavy tilt towards later in the year when the investing environment was more favorable. We returned $43 billion to our fund investors through realization. I believe our sustained high level of capital deployment over the past several years is planning [indiscernible] for eventually harvesting significantly larger future distributions than what we are generating today. Blackstone as I would argue the best position firm making long-term investment to capitalize on the changing investment landscape. We have the industry's largest dry powder at $80 billion. I expect it will raise tens of billions more in the coming quarters as limited partners look to a franchise they trust, a safe pair of hands one that has navigated these types of environments successfully like we have done with 30 years now. And our LPs continue to allocate greater amounts of capital to the fast growing alternative space particularly the Blackstone as the Wall Street Journal reported last Friday on its front page. Our public equity sales have been slower in the past two quarters for obvious reasons, but that didn't materially slow the overall pace of realization activity in 2015. That also means that there is more in the ground today, compounding value which will eventually be realized for our investors. And despite that we still have a huge year, a record year for realizations. We have also launched several new funds in businesses in the past year. This is where Blackstone really sets itself apart from other firms in our industry and frankly most others in the world. The foundation of our culture and therefore our success over the past 30 years is innovation with safety. While most companies struggle to build great businesses outside their original success, it is a core competency of our firm. We continue to quickly launch and scale new products, leveraging our talent, knowledge and brand in order to take immediate advantage of market opportunity. For example, our real estate core plus business has grown to $11 billion in size in only two years after its launch and it has incredible runway ahead of it. In our hedge fund solutions area, our new multi-manager hedge fund platform has grown rapidly to $2 billion in AUM using only 8 portfolio managers currently and we have been very pleased with their performance so far. Our secondary business which Tony James was instrumental in founding the TLJ for Blackstone acquired in 2013 is now raising its seventh main fund and several new funds targeting $10 billion or many multiples the size of their main fund when we acquire this platform just three years ago. Our tactical opportunities business launched three years ago is already $15 billion in size and is benefiting from many of the opportunities opened up by the bank pullback in certain areas. And in real estate our commercial mortgage REIT, [ESMT] is benefiting from the same trends. [ESMT] is exclusively a senior mortgage lender with floating rates, so you don't have to worry about rates going up which people seemed to be fixated on. With collateral underwritten by our world leading real estate platform, yet it is today trading at 10% yield for senior floating rate debt. It's trading below book between, you’re now basically getting a Blackstone real estate franchise for a negative value and that makes no sense. But that's the world right now in equities and leverage credit. We have seen versions of this movie many times before with always the same outcome, outsized returns for someone. So to answer to my earlier question what’s changed the Blackstone over the past year that we’ve continued to build and extend our leadership position in basically every area we are in. our stock price decline is reflective of what’s happening in the public markets and the mark-to-market movement of certain of our assets, which we do not believe is indicative of their fundamental value as measured by their operating results and their prospects. This temporary decline in value should normalize overtime. Our firm is in terrific shape with strong momentum in every area. We continue to generate high levels of current cash flow for unit holders with a distribution yield as Tony mentioned on our earlier call, with just on fee earnings with some other flows that is the top quartile of the S&P 500 and that is without the help of any realization, which constitute the majority of our earnings overtime. And the trajectory of our fee earnings is sharply upward, which you’ll see in the future which Michael Chae is going to speak next. We will discuss in more detail. We remain highly profitable with strong growth prospect and downside protection in the form of stable and growing fee earnings and a rock solid A+ rated balance sheet with about $4 billion in cash. And right now you're getting Blackstone on sale. As I've shared before, we've done an implied stock price analysis for the next 10 years. Based on what we believe to be conservative assumptions of AUM growth of 8% to 12%. By the way, last year was 16, but we just like -- we've some numbers for you, at 8% to 12% as well as lower than historical returns for our drawdown funds in the mid teams instead of higher and mid-single digit returns in our liquid strategies which has historically has been much higher. The implied total value for Blackstone shares over that 10 year period would be in a $100 to $125 per share area. That is including distributions and using what I believe is a reasonable yield of 5% to 6% on our cash flows. That $100 to $125 per share value equates to a multiple of money to U.S. investors of between four and five times today’s stock price. Wherein IRR, was about 19% to 22% annually, compared to the 10 year treasury, which as you know was around 2%. I guess, the question is we do prefer 2% or 20% annually? It doesn't seem like a tough decision to me, but it apparently is to many of you, but I'm in the minority. If an investor can do better than four to five times their money in 10 years, then they ought to go ahead and find something to do with. I'm personally not selling my BX units, and I believe great things are ahead for this firm. At Blackstone, we continue to benchmark ourselves against the best performing companies in the world and feel quite good about our progress, delivering strong growth, high margins, and terrific returns for our L.P. Nevertheless, we're always striving to do better and to do more and 2016 will be no exception. Our shareholders can be assured that Blackstone will never stand still. We will keep blazing the trail forward and I hope you all remain with us or join us if you're not already a shareholder at this wonderful venture. So, thank you, for joining our call today. I'm going to turn things over now to our Chief Financial Officer, Michael Chae, who is doing a really terrific job. And I guess this is his second earnings call.

Thanks, Stephen. Good morning, everyone. Despite the significant downdraft in markets that we experienced for much of the second half of last year and which has continued into this year, Blackstone generated favorable earnings, cash and capital matrix for both the fourth quarter and full year. Fundamental pillars of our business remain extraordinarily strong regardless of market conditions. Our full-year distributable earnings of $3.8 billion up 25% from the prior year was our best ever and also the best ever for the alternatives industry with a prior record being our own 2014 performance. The primary driver of this was a $610 million increase and net realized performance fees and investment income from 2.3 billion to 2.9 billion, with year-over-year increases in both private equity and real-estate. Reported fee related earnings declined modestly from 1 billion in 2014 to 936 million in 2015, with the underlying strong trajectory of our asset management fees [indiscernible] growth offset by two items. First, we completed the spin of our advisory businesses in October 1st, and so 2015 was without what is typically those businesses seasonally strong this quarter. Second, as discussed last year, we changed the deferral policy for equity based comp plans in the fourth quarter of 2014, which provided a benefit in that quarter to FRE. Adjusting for these items, FRE was up strongly in 2015 and we expect it to be up strongly again in 2016. ENI was 2.2 billion for the full-year 2015, down from a record 2014. In the fourth quarter, our ENI was 436 million, reversing the $416 million loss of the third quarter. The lower rate of fund depreciation in 2015 was due primarily to the declines in our public, and to a much lesser extent in the second half, which -- decline our public was expected most of our businesses and to a much lesser extent, certain unrealized mark downs in energy and credit and currency translation of tax and some more non-US holdings. Importantly, the locked up structure of most of our funds means that we'll never force sellers and can wait patiently until the time is ripe before acting. In fact, including our hedge fund solutions business, 94% of our fee earning AUM are in funds with long-term lockup structures and have a weighted average remaining life of approximately eight years. This is the heart of our business model and fundamental competitive advantage. In this context, I think it is informative to look at our historical experience with public market exits. In the past 10 years, we've IPO'ed and fully exited 11 companies with public markets, representing $3.7 billion invested capital. We took them public at a 40% gain on average from the prior quarter mark, patiently timed our secondary's, generally and successfully higher values not withstanding market fluctuations and realized a final cumulative multiple of investor capital of 3.6 times on average. Today, we have $24 billion in public, in our private equity and real-estate funds which of course is greater than past periods given the significant growth of the firm. Although our public have been under pressure with the broader market so far in the first quarter which could impact ENI in the near term. We feel good about our companies and remain confident and our abilities to exit them over time at attractive rates return. Currently, our public stocks are marked at a 1.8 times multiple cost in aggregate, reflecting significant built-in gains even at current levels. As a companion point, we feel very good about our private portfolio. At times of stress in the markets, it is worth noting that our portfolio remains marked and the material implied discount for the multiples and market comparables. And as you know, overtime, our IPOs and private sale values, consistently come at large average premium to prior earnings release. Let me now dig in a bit more into our 2015 performance at the business unit level. And we navigate the truly tricky year. First, performance. A competitiveness in growth of our firm begins and ends with investment performance. In 2015, our private equity segment fund outperformed the S&P 500 by approximately a 1000 basis points. Our real-estate's BREDS funds also outperformed the S&P by about 1000 basis points and the re-index by over an 1100 basis point. Our hedge funds solutions composite, up from the S&P by over 300 basis points and the HFRX hedge fund index by over 600 basis point. Second, realizations. As Steve highlighted, we return to our investors $43 billion in realizations in 2015, following a $45 billion year-end 2014. That's $88 billion in 24 months. In real-estate, 21 billion this year, and $41 billion over two years. In private equity, $13.5 billion in 2015 and $29 billion over two years. Credit, $8 billion this year and $17 billion over two years. We feel very good about having capitalized and favorable market conditions on a realization standpoint. Next, deployment. How did we navigate the tricky year from a deployment standpoint? Corporate private equity, we step carefully through what we saw the challenging terrain. We committed $3.5 billion in capital, in essence quietly in 12 deals with an average deal size of less than $300 million, largely and off the run value oriented plays with an average purchase multiple of [108] times EBITDA. Average leverage of under four times EBITDA and we did none of the large highly leveraged LDL's, number of which are now hung up in the financing markets. In real-estate, we leveraged our singular platform and consummated hallmark deals that we are uniquely positioned to do and which often capitalized on increased market [indiscernible]. The GE deal, for Stuy Town, or public privates among other. And them, we launched our multi-manager platform at a time when subsequent market turbulence revived opportunities for short and our team capitalize on this environment. As critical where the things we didn’t do. In energy, we have raised over $8 billion of dedicated capital in private equity and GSO to take advantage of the current dislocation. And almost all of it remains undrawn. In terms of existing exposures, we are mark-to-market and the full-year impact from our energy investments in 2015 was about 5% of our ENI of $2.15 billion. That includes all of our energy investments in private equity and credit, not just oil and gas and E&P. And so that includes investments in energy sectors such as power and renewables that are not directly affected by oil and gas price. In terms of our credit area in general, the fourth quarter was a difficult one for the market overall and for parts of our portfolio, particularly certain energy related in a venture of in situations. The situation is obviously continued in January. The vast majority of impact was from unrealized markdowns and in company where we feel good about their prospects. Historically, I would note, GSO has experienced realized losses of less than 50 basis points, drawdown and in direct lending fund. While in the near term, we should plan for continued market pressure that may further affect these marks. We expect that eventually, markets will bottom, stabilize and recover. In the meantime, we bring to a credit market that is seeing unprecedented dislocation in increasing liquidity pressure structurally. The ideal investment platform were approximately 80% of our capital base, is in locked up or permanent capital structures, where we are not for sellers and are poised to strike as buyers opportunistically. Indeed, some $15 billion in dry powder, our team with GSO has a record amount of funding at what in their view will ultimately be the best time to deploy capital on the credit markets since 2009. Last topic I'd like to address this morning is the outlook for distributed earnings. Which includes both our growing fee related earnings as well as our expectations with performance fees. We have significant embedded growth in our fee earnings, just based on capital that has already been raised and also fundraising initiatives currently underway. 2016 will include the full-year benefit of [indiscernible], in private equity BCP VII launched though there was a six month fee holiday which will delay the onset of fees. In addition, we have multiple new funds being raised which will positively impact this year, including among others, and European real-estate debt and core plus, Strategic Partners flagship secondary's fund and other SP products, Tactical Opportunities products, GSO's Mezzanine Fund and other products, more private equity and inflows across a wide range of their end products. These fund raisers are progressing very well across the board, and we're expecting the aggregate in other very robust year of inflows that will add meaningfully to FRE in the near term. With respect to realizations, we have a significant pipeline of situations with a potential to be monetized at the right time and in the right conditions. Although, the near term could be impacted by more limited public market sales, we have other means to generate realizations, including potential private sales as well as the current yield portion of our performance fees. As of year-end, the approximately half of our net accrued performance fee receivable, that is from vintages 2010 and prior, is nearly all public and or liquidating. And the vintages since 2010, we’ve deployed $104 billion in capital in our drawdown funds alone or about $21 billion per year on average over that five year time period. A substantial portion of which is still in the ground in companies that are fundamentally strong at performing well. While the investments needs funds are seasoning, their ultimate potential is not reflected in current marks. Although we've had several years of significant realization volume, the ratio of capital deployed to the cost basis of realizations at an average 1.6 times for private equity and real-estate, meaning we've been putting well more into the ground than we've been taking out. The cupboard is not emptying but on the contrary has been refilling. And today, we sit with $80 billion of dry powder, $34 billion or some 73% more than this time last year, phasing into an even more interesting investment and bargain. In closing, although the environment has become more volatile for investment management, it's exactly in these types of environments that our firm prides and builds upon our existing leadership position. We believe we have a powerful and valuable business model [indiscernible]. Over the last eight quarters, our fee revenues per dollar a fee AUM, at average 3.5 times those of the largest traditional asset managers. And our total revenues including performance fees, per dollar fee AUM had averaged eight times those of traditional managers. Our AUM has grown at over 20% average annual rate for the last five years and we expect to stay on a robust trajectory. The vast majority of this AUM as I mentioned is locked up for an average eight years. And most importantly, we bring to this environment, a record, over three decades of having approximately doubled the returns to the public market and other benchmarks. So, while we reach several new records in 2015, we believe we've never been better positioned to capitalize on the many opportunities in front of us and to achieving even greater milestones in the years to come. With that, we thank you for joining our call, and we'd like to open it up now for any questions. And Christina, before you prompt for questions, I'd like to just remind everybody, if you can just limit your questions to one main question and one follow-up, we've got a pretty full queue and we want to make sure we get you everybody. If you have additional question, you can queue back in.

[Operator Instructions] Your first question comes from the line of Luke Montgomery representing Bernstein Research. Please proceed.

Just in terms of deployment in energy and other commodities, I think yes seven or eight billion of dry powder last quarter. Think you also suggested that the Energy P fund and GSO were biding their time at least to the first half of the year, but I think I hear you saying now you feel the opportunities are riper for capital deployment, so maybe you could speak your appetite in the current environment flush out some of the things you are looking at?

Yes, this is Tony. Let me just clarify couple of things. Michael said over 8, I think I said 8.5 of dedicated energy funds. Most of those funds co-invest with another fund for example, our private equity energy fund takes about half of the deals and so it drags along a similar amount of private equity capital. If you add all of the capital we have available for energy is closer to $15 billion. So just to clarify, so there is no confusion. And yes, it's hard to call the exact term, but as I said before these prices are not sustainable. The nice thing about oil and gas wells are they decline covers fairly sharp, they deplete quickly. These are in copper mines which can produce for 50 years and if you are not drilling a lot of new wells and you are producing which is what’s happening, which is why there is surplus, very quickly supply self corrects. So whether it's sometime in the next – we could survive these prices for several years with the investments we are making and still we expect prices to be 65, 75 in four or five years and we will make some very, very nice returns. So, when we look at energy investing we look at surviving a long time where prices are today and then still getting very, very nice returns if we get back to prices 60 or above which are well below prior peaks. And ironically, the lower prices go today the higher they will be in five years from now because the more other new drilling and what not get shut off. So yes, we think it's a very interesting time to put money out now, there is a lot of companies that desperately need capital, you can come at the top in some cases top of the risk stack, top with capital stack and still have equity like return and other cases great companies with good assets just have no alternatives. And actually, I think as the cycle unfolds it will get better and better and better because the prices start to move up the activity level will pick up quite quickly and so I think it will actually even get better as prices move up, it is the way to deploy capital.

Okay, thanks, really helpful. And then, I think one of the questions we get is around how you are marketing the private equity or the private positions rather than private equity and real estate and because its DCF based those marks might not reflect which you can sell them for today. My understanding is that you actually aren't allowed to mark-to-sale and I heard you that the fundamental cash flow growth looks strong, you’ve a long horizon I think, you might have even addressed the question indirectly already, but I was hoping you might speak to the concerns that private marks could be masking a decline in distributable earnings over the immediate term?

Sure, it’s Michael, as I mentioned in my remarks our private portfolio remains marked at a material implied discount to the multiples of market comparables and overtime again as we talked about our IPOs and sales have consistently come at large premium to private caring values. And if you step back that's because in our private evaluations we focus intently on fundamentals and what the right long-term historical average multiples are for a given asset or an industry and at the same time we do keep an eye on whether our employee caring multiples at a given point in time are appropriate relative to current market multiples which we consistently feel they do and definitely do today. So, we feel good about it and that's a little bit of an insight into our process. Let me comment a little differently on that. First of all, last time as you know we went through this, we did not have big mark downs in the portfolio much less than the public markets and when we sold, we had big mark ups and realized big gains and with even BCP 5, we’ll be coming gross to two double that just money, why is that. It's because we are not just buying public stocks here that mark up or mark down. When we buy it, we are buying companies or going and creating value by significantly increasing their earnings and their growth rates and their margins and their return on capital and enhancing their management teams. And that goes on whether the stock market goes up or down. So, we create a lot of value and our private companies appreciate even in declining markets.

Alright, thank you very much, appreciate it.

Your next question comes from line of Bill Katz representing Citigroup. Please proceed.

Thank you, I appreciate taking my questions. First question is, on just the pricing backdrop. One of your competitors was out recently in the talk mentioning that there was potential for downward pressure on 2 and the 20 and so I was wondering if you could comment on what you are seeing and what would you anticipate if any type of pricing change as it relates to some of the drawdown of businesses that you run?

Yes, I was surprised to that actually we haven't been experiencing that and we have sold out, I guess, it was better characterizations blown out every fund that we marketed over the last x number of years. And occasionally, we have some sort of negotiation over massive amounts of money in the multibillion dollar categories that would be special account right over whole lot of different products. But what other group was saying, we have not experienced that and if you look at the kind of returns that we have talked about and Michael had a lot of stuff he was saying, but I think his last sentence or two said something like we have averaged around double the S&Ps something of that type borrowing funds that are trying to get those kinds of returns. When you provide that kind of like super performance what you find is, you end up having great long-term partnerships with limited partners where the win-win type of arrangements so that's pretty much what we are experiencing.

Let me comment on that. We have one of our main businesses is tactical opportunities we are seeing the precise deposits. We are having a significant increase in fees carry then we had in fund one. And they are both oversubscribed. They are both oversubscribed.

That's helpful. Alright, [indiscernible] but since it's been lot time I wanted to prepare remarks to figure why not, when you reported third quarter earning stock was 33 by your math you can get a 4x return on your investment if you would have purchased Blackstone today. By looking at page 23 of your supplement which is one of the better supplements by the way, you lay out all your export realized and total invested and none of them comes close to 4x. So how do you think about capital return or capital priorities as you look forward and as you are thinking changing all in terms of buyback even where the stock is today since nothing has changed in the business model?

We get asked about stock buybacks and for us, we think our first of all our model of projecting what we are doing we think is actually quite interpretive. And so, the question is why aren't we doing a massive stock buybacks now and one of the reasons is that I like cash, I like it like a lot of entrepreneurs like cash whether it's the Microsoft people or the Google people or the Apple people, you like cash because it gives you the opportunity to take advantage of opportunities and what happens is, we are being approached for example, by a number of different organizations that want to affiliate with Blackstone because we payout, we are trying to please people including ourselves and we payout almost all of our earnings and we have sort of sky high yields by the standards of other companies. And so, for us if we buy stock in then we are leveraging ourselves up and we need our cash for two reasons, one is acquisitions. And the other is, at the rate we are growing we have to keep putting money into funds, limited partners believe that if you don't invest in your own funds you don't show confidence or alignment. And so, we always want to have lot of money around because our ability to start new products is really remarkable and last year we grew at 16% after giving all this money back and we keep coming up with new products. We put ourselves in a position to the major share buybacks and not be able to fund the growth of the business, which puts money in the ground for long term and we grow from fund one to subsequent funds very rapidly, would not be investing in effective long-term. Nothing wrong with buying stock at this price, nothing but if we think we are compromising our ability to grow one of the greatest companies in the world, it's just a question of how do you allocate that and they are all good allocations. But, I am a great believer in taking advantage of every investment opportunity for the benefit of our limited partners and if we do a great job for them they have trillions and trillions of dollar and if we keep getting a vastly disproportionate amount because of the performance that's great for our public shareholders over the long-term. That was the long answer, but I wanted to tell you how at least I think about it.

Let me add a couple of color from my perspective to that. First of all, we absolutely think this stock is in unbelievable buy right now we all are on it personally. I mean, I don't know exactly how much Steve owns these days but it's a lot of stock. And he hasn’t sold a share since the IPO, so we are all in on the stock we think it's a fantastic buy. Secondly, the value that Steve talked about of $100 one of the things that drives that is the organic growth rate that we have got to take capital to fund. So, if we stopped having the capital to fund the growth, I am not sure we’d necessarily be ahead of the game, but that's really not the point. We are here to build a great institution that takes this place for enduring great companies of America. And we have got an amazing opportunity and a clean shot to do that with nothing in our way and we have got a daylight between us and all the other competitors and we think we are supposed to go, build that legacy and do something really special here and not take advantage of short term trading opportunities because of buying a few shares because there are little low.

Bill, let me just clarify one thing you stated in kind of set up your question. I think you alluded to the page in our 8-K with our investment records on our historical [mikes] which range 1.8x, 1.9x. Assumptions underlying the sort of the analysis and model that generates Steve’s discussions and view on our long-term equity value creation, it's premised very much on that 30 year history of producing those types of multiples of money, which then produces the overtime which supports the yield that support the stock price Steve mentioned. So I just wanted to be very clear about that.

Thank you guys.

Your next question comes from the line of Michael Kim representing Sandler O'Neill. Please proceed.

Hey guys good morning. First Tony I think on the immediate call you mentioned the range of something like $1 to $3 of distributable earnings this year depending on realization activity. So first, is the low end essentially just based on fee related earnings and then at the high end what sort of general market backdrop would you sort of need to generate that level of realization?

Let me be clear, I was not in any way making a projection about what we might be in 2016. I was simply pointing to the structure of our business where we are in a position now depending on realizations to get somewhere between $1 in any year, $1 which is driven largely fee related income and some of the recurring income investments we have like interest on debt and stuff like that which you get over year regardless of market. Two, this year we got over $3 in DE and so we are $1 to $3 like payer on a stock of mid 20s, what kind of yield is that to make any sense and so all I was, what I was pointing out is, I wasn’t trying to make projections as to what the realization would be in 2016 although I will say, I don't see any reason why we can't have significant realizations in 2016 on top of the $1 that comes largely from fee related and other recurring income.

Got it, okay, understood. And then, Steve since you mentioned wanting to maintain cash on hand for potential acquisitions, just curious if you could maybe comment on where you might be focusing your attentions and then what you are sort of seeing in terms of the competitive landscape in terms of competition and/or pricing trends?

Well, giving away insight information on widely spread calls is a bad idea and we get approached by different types of managers whether they are long only managers, alternative managers of all sizes because what’s happened is every time that someone has affiliated with us their business has exploded with growth. So, we have our own sort of list of priorities which we think makes sense and then we get over the trends of type of increase and what we are interested in doing is expanding when it makes sense with businesses that we can really enhance with people who share similar value system. We are not trying to do anything for the short term. And for us to actually buy something there has to be a fit of values and culture and risk aversion because what I figured out is that there are no brave old people in finance, usually it get wiped out by being brave when you are younger. And so, we have a number of things, we are looking at what tends to happen is, we have an advantage actually of real liquidity in our stock. We typically are about half the market cap of our whole industry. And if anybody is interested potentially in liquidity we are very good home, but we are quite discriminating, we don't want to do anything that puts ourselves and changes the culture of the firm. We like building them ourselves, but we found some really terrific opportunities and more of this stuff comes out of the woodwork when you have adverse market cycles than when you are at tops. At top everybody is self confident and happy and then when the tide goes out you see who is wearing bathing suits or whatever and maybe I was like, to have to be wearing them, but we are seeing some activity now, we will see what happens with it.

And I just want to comment, we have made seven or eight acquisitions, the returns on all of them have been terrific and so I don't think you will see transformational things that change those courses of the firm overnight, but we will continue to smart acquisitions where we can build a lot of value. And none of them will be ego driven by the way to have bragging rights for more AUM or something.

Got it that's helpful. Thanks for taking my questions.

Your next question comes from the line of Patrick Davitt representing Autonomous. Please proceed.

Good morning. My questions are around the credit comments that Tony made on the media call, can you just walk us through from GSOs perspective what kind of leading indicators they are looking at to give them comfort. It's a good time to wrap up the investment that they have in other word what leading indicators do they see that show that the issue is not broader than energy and in that -- at what point do you worry about the liquidity driven by [indiscernible] leading into real credit issues?

Okay. Well, let’s put energy aside. I think if you look at and Michael can help me out here, if you look at the implied default rates on the pricing of low investment grade credit today away from energy, there are something like Michael 4%- 5% and yet we see to actually achieve those default rates you would have to go into a recession in our financial crisis similar to what we went into in 2008/2009, we don't see that at all. So I said, the leading indicators is a point where we view it, what we view is inherent value right now. So the yields are too high for the embedded credit risk and therefore it's a good buy. And so, we are putting money into the market, we are getting additional money from investors to continue to do that. I don't think this is something we are going to plunge at all in one day though, we are somewhere in a good part of the cycle, we will continue to take a series of bites in that part of the cycle. Incidentally, I would say the same thing for energy about where we are in the cycle and the bites we are taking although obviously in energy you are going to have some fairly high, actually default rates. And so we are baiting that into our scenario too. But, I think that the inequity of the market has driven pricing of less than investment grade credit on reasonably low yields, too high for the risk and so we are taking advantage of that.

Just to give you one idea, without a name but there is one surety we were discussing the other day was sort of a yield of 17% at somewhere around 6x EBITDA in terms of value through the debt. Well, we buy companies all the time at 6x to 7x EBITDA and if you could get like a 17% cash yield the due is. Remember treasuries are two, so it's not so bad. But markets gaping out, I mean, you have to hand it to the regulatory environment when you get rid of basically dealers, stop the gaps and our job is to take advantage of that for our investors.

Thank you.

Your next question comes from the line of Ken Worthington representing J.P. Morgan. Please proceed.

Hi, good morning. In terms of financing, you are putting a lot of money to work. How are you finding the financing markets say less economy, let me try it again. You are putting a lot of money to, how are finding the financing markets maybe where they are less accommodative and to what extent are you seeing others having a hard time closing deals you mentioned some hung deals, how wide spread is that really and I assume that you insist on and you get preferred financing treatment, so is the financing market inconsistent enough yet for this to be an advantage to you?

Okay. We are getting financing on the deals we want, actually in most of the cycles before the credit market turn down, we felt that the credit markets were giving too much debt for the companies that we weren't taking all of that was available, we just didn't think it was healthy to have capital structures that are over levered. Those have come down a little bit, but we are still getting 5, 6 sometimes 6.5 times debt to cash flow for our companies. However, as Michael pointed out a lot of the investments we are making are lowly leveraged and we are getting the returns that we target sort of 20% plus without much leverage by driving the operational change and the growth of the business. So we are not, our returns as I said over the years don't come from leverage. They come from what we do with the companies number one, and number two, excessive leverage environments push up prices that seller get when they sell the company and force us to pay more and lowers our returns as an industry. So it's not good. So this backup is good for private equity make no two ways about it. And there is more values, the fewer buyers and there are lower prices out there when we make the investment. In terms of others problems, the problems we’re concentrated in the really large deals at very high prices where sponsors were mostly doing public to private was one big carve out where there was a problem and the market is working through those. Some of those deals are being re-priced, some of those lenders are taking lumps and moved on, some of them have gotten done pretty well, actually so it depends on the specific situation. The market likes plain when it looks solid businesses right now you can still finance those well. If it's a turnaround or falling nice kind of deal it's hard.

Great, thank you very much.

Your next question comes from the line of Mike Carrier representing Bank of America Merrill Lynch. Please proceed.

Thanks a lot. First question I guess on the current portfolio, I guess it's two parts just first, I think you mentioned that they’re still seeing EBITDA growth, but any details there and I think as later in the cycle people worry about or investors worry about slower growth and so maybe from an economic standpoint versus what you guys can do or the portfolio companies can do to drive growth like what’s the outlook? And then, when you look at the returns whether this quarter for the year any breakdown for the public returns versus the private side of the portfolio?

Well, I will let Michael deal with the second part. Our corporate companies are having EBITDA growth in the low single digits, low to mid single digits depending on the company. Our real estate I would say are mid to high single digits.

I would add that in our portfolio, if you look at the economy overall in the U.S. for corporate, the most pain as Tony has alluded to last quarter and now is around kind of the industrial companies that are most export exposed to the global economy. Our private equity portfolio happens to lighter on that kind of thing, heavier on some other industries which we think, which for reasons we selected sectors carefully and tend to be relatively growth here. So that is why in aggregate as we talked about, while we see some deceleration even our own portfolio we are still outgrowing the sort of public market overall meaningfully. On the performance of our publics and privates, we don't sort of break that out per say, I would say two sort of dimensions to it. One is obviously, over the course of the year there were some fluctuations to the third quarter, publics generally were down in the fourth quarter, they were covered and you saw that flow through our E&I in third and fourth quarter in terms of us basically having a E&I decline in third quarter and then more than reversing that in the fourth quarter. I would say the other dimension is certain sectors have been hit more than others, so in the real estate area we are lodging it as a significant component, lodging stocks have been hit harder than other sectors. So, you see some sort of sector differentiation here and then to the course of the year you saw obviously ups and downs.

Okay, it’s helpful and then Michael maybe just a quick follow-up. You mentioned just on the FRE outlook given some of the funds that will be, like fees will be turning on, just you want to get a sense, when you think about maybe the net of like fees turning on and step down the funds then probably more importantly like the FRE margin as we go into 2016 and 2017 because I guess 2017 you have kind of a full year both little flagships. But just wanted to get a sense on where that would typically range as the fees are starting to ramp up?

Yes, I would say overall Mike that sort of, we’ve lot of visibility on FRE for 2016 based on funds that have been raised and will be activated this year. And the trajectory is really good, it’s really good. And that is notwithstanding that for example as I mentioned, BCP7 will activate this year sometime early midyear and there is six month holiday and so in fact, the real contribution, substantial contribution from that fund will occur in 2017 when there is a full year effect. So, I make that comment about the trajectory 2016 notwithstanding that and that obviously will help further in 2017. So overall, we feel, we’ve lot of visibility on that and we feel good about that.

Okay, thanks a lot.

In terms of the margin Mike, I think if you look at kind of historical over the years, last year that the margin as I alluded to was reflected a bit that change in the deferred comp policy but when you sort of adjust for that we’ve been on a upward march from an FRE margin standpoint for years now, and we believe we can stand.

And interesting, I note for the group an interesting – while we raised $94 billion last year and I think I mentioned this year, of course, we don’t have, as long as flagship trends come in the market, we still have plenty to do and we’ve lots of fundraising. But our fee earning AUM getting to your point was up about 14%, 15% last year. We actually think it will be up comparably in 2016 over today, so it continues chug along and part of that is the fundraising cycle, but part of that is when the fees kick on and part of that is deployment and all that play through, they’re very steady rapid in fee earning AUM.

Got it, thanks.

Your next question comes from the line of Michael Cyprys representing Morgan Stanley. Please proceed.

Hi, good morning. Just to start off with the question more on the more of the macro environment. It seems that if there is a circularity right now in the market place, where China's currently devaluating, U.S. dollar appreciating, oil price is collapsing and equity prices falling. But I guess just how bad is it, what's the contingent risk, what gets us out of this kind of funk here, and what's the real risk to the U.S. economy?

I think it's sort of the -- it's always hard to know what everybody thinks, but sort of from trying to feel the consensus has been very negative towards China. And I think that's because people have looked it the way China has built with its securities markets by first of all running them up to unsustainable levels and now having them sort of go down and trying to intercept them on the way down to push and falling. That's been recently unsuccessful and given a bad tone, a bad perception. China is similar with the stop and start on the current team, which really hurt confidence in then on Chinese world. China itself has about 52% of its economy in services, which are growing from what everybody can see in excess of 10%. It got last year it hired 14.4 million people more than they hired when they were growing much faster. Wages, last year were up significantly in China. So, it doesn't have the feel that something that's like certainly in free fall, because it's not. The other sort of 48% of the -- there are Chinese economies having a more mixed picture from sort of declines and in this field business and sort of backing up against building in structure. They've got a lot of infrastructure and so, there is going to have to be some rationalization in that sense. But if you have half of your economy growing at 10+ and the rest is a mixed picture, you're not in a world of hard landings other than the fact that people have lost confidence in some of the policy directions in the market place. So, I think that’s a bit overdone. So, as we look at the world, that there's commodity, China grows but half of the world's commodity, and they're not buying this much, although this maybe shocking to you that their purchase of oil in the last year was up 10% and I think most people know that. Not all commodities are down, but the wash through the developing economies of the world has less commodities are bought and the price is sort of really collapsing. Yes. But a lot of minerals mining and that kind of stuff, and structural over supply and people shutting mines and stopping development and that's a long cycle type of approach which will lead to slower growth in the emerging market. It has to, and it's not just emerging markets. It's a country like Canada, for example, which is [indiscernible] resource country. They're not growing, they are some quarters they're in recession. So, we sort of looked at it as sort of a slowing of sort of the world. And the U.S. is experiencing that to some degree. And Europe's being sort of going to stimulation with QE and [indiscernible] on the lot of stuff at Europe. And Europe seems to be pretty solid. As -- might even do 1.5, I don’t know. In the U.S. probably ought to do, anybody guess, 1.5 - 2, that's like half of the world. And China is going to do again with what's reported. I don’t know whether it's four, five, six, I call it five. And that's 14% of the world. So, you start running out of difficulties, although some of that remaining part is really falling into a bad position whether it's Brazil in recession, Russia in recession. India is doing sort of quite well, they're reporting seven. Some of that's got inflation that just to remit or whatever. So, maybe it's five, 5.5 but India is a pretty big place. So, places that were growing, Columbia thinks it's going to grow 1.5 - 2, but it -- so there is -- it's just a bit of a slower world. And part of the issue why people ask these questions is that some of the stuffs happen too quickly. Like the Doyle, for example, it's just potentially destabilizing certain [indiscernible]. And you saw this morning, that the IMF, now as it for [Joan] [ph], now as of Joan like for years ago and it's really humming. And now they got the IMF visiting and that's what happens with very quick moves. And some of these things will reverse. They don’t reverse in one quarter to convenience anybody. But when if you have 20% declines in CapEx going into oil exploration, with a 4% decline curve, do it, do that for a few years and something is going to change, and it will. So, I think we look at all this and say okay, if that's what's going on in the world, where do we play? Where are we worried, where do we play, can we play in sized. We do things better conservative with big upsides, add a lot of value. In certain of our overall businesses are really in great shape, industries we invest in. So, it's not the end of the world. If you look at the stock market, I mean, you have to conclude, it's like the world is ending. Well, I don’t think the world is ending. I think we're going through an adjustment and people like ourselves who own long-term things and add enormous value end up at the end of the day being mega winners. That is my view, and it's also because it's imperatively been true and nothing has changed within the firm. That was the capability of people, capital, all the great things that enable you to do this stuff. So, that's sort of how I see these.

And I would add that. I think people are over reacting to the stock market. I mean, we had whatever a seven year ball market without a correction. We were like just statistically got to be a way overdue for correction. And the backdrop of the S&P companies' net income is weak, it's been zero. So, fees have got high, I mean. And people look at the average S&P, that's kind of a distortion. Look at the median company in here because the average has dominated, because it's market evaluated by Apple and a few huge names. Look at the median P, and P is high. So, we had a correction, big deal. There's enough going on. I think people are overreacting to that. And I just want to – the implications what Steve said about China are healthier than it feels to people that trade with China, because a lot of where the growth is is internal services part of the economy, which does drive -- doesn't drive their imports or someone else's exports. So, I think a lot of people who they try to trade with China, it feels slower than it really is for that reason.

Yes. I mean, I was watching [indiscernible] was on and they asked him about Chinese, it is my second biggest market both revenues and profits and think just slowed down a little bit, but it just felt terrific for us. I think that it's a more nuance world, not a simple world.

Great. Thank you, so much, for that answer. If I could ask a quick follow-up on the leverage the financing market comment from earlier, but the market just still open, it seems for you. But I guess just how you think about the risk in terms of credit availability drying up. What parts of your business could be most impacted and also what parts would be least impacted. Because I think there are some areas where you use less leveraging and not much of any financing. Could you just help or think through that and how you manage around that in the environment?

Okay. Well, I think all of our businesses will earn more money on the new investment they make in that scenario. I think in terms of the private equity business, which is one that people will go to right away and awful lot of what we do things that don’t require much leverage because they are growth equity, they're building new infrastructure, and we build us a solar field in Mexico or an offshore windfarm in Germany or things like that. It's they are not leverage driven, obviously. And so, we're not doing, as Michael mentioned, we're not doing a lot of big highly levered public to private. So, we'll let impact us. Yes, I think it'll impact us by giving us more of buying opportunities. But in every environment, since I've in a 25 years or more that I've been doing this, we've always been able to get access to credit, always. And the amount of credit may go down, the source of the credit may go down, structure of the credit may change, but we've always been able to access credit in the private market, that something really, and that's usually more than compensated by the lower prices. And if anyone's going to get credit in that market, it's Blackstone. Now, on the real-estate side, again, real-estate is somewhat impacted, but it had different credit market and we were able to do secured real-estate financings even the depth of the [indiscernible] will still be able to. And so if you're right, that somehow the credit market completely dried up for real-estate, boy that would be interesting again. We got the capital, we got the equity capital. Other buyers won't have access to either the equity or the debt. I would think that would be great long-term. Our credit business again locked up money. They'll be the lender of last resort. They'll be able to basically write senior loans at 20% kind of returns, equity kind of returns. And if you look at what happened with their [indiscernible] returns, they're in the 18% 20% area. So, that will be fantastic for them. So, all-in-all, I just don’t -- I think in that scenario by the way you probably have massive [indiscernible] in the stock market too. I don’t know how you can have a shutdown credit market and that's some kind of panic associated with it. One thing, is cycled to this stuff. So, what happens is when credit really tightens of its available price just go down is probably was willing to. So, we'll look at something and we were just looking debating something the other day in our tech offices, what's the unleveraged rate of return that we should get for something and so would know credit? We were debating on this one, whether should it be 15, should it be 16, and this is no leverage. So, if you can buy something that make a 15% 16%, as soon as market's [indiscernible] that you're worse scenario comes true. There is just no really credit available and you could set things up at 15, 16. Oh my goodness, this is like nirvana, because credit always comes back and then you put credit on it and you're making like 24% 25%. This is how we got into the real-estate business. In 1992, there was no credit. You couldn’t borrow anything. Right? You really couldn't. We went out and started buying real-estate from the RTC and other people, I didn’t even know how to price it, and so I just did it at 16. 16 sounded good to me. So, what happened, is that 16 when you put leverage on it, it came like a 24. And in that case, with real-estate, we just filled up the empty units in the buildings and the 24 became like 45% compounded and then rents went up and we made 55%. So, when you enter this type of period, I mean, Tony was pretty joyful, I thought, and excited about it. And as asking the question, you obviously think it's like horrible, which is why you asked the question. But when you live through this game, there is big money to be made and it's not because of the credit thing, you use that credit cycle. And CSO will make tons. All right? Because everybody needs credit. The idea that credit is like an optional in the global economy, credit is not optional. You'll get it at whatever price from whatever the purveyor is, that's got it for you. And then you get way more options, to extent credit. You say for to extent credit. So, it just is unfamiliar to be in that part of the cycle, if you have a monolithic model of how the world works.

And specifically as Steve's point. In each of private equity tack ups and real-estate, we've done deals now on the assumption there is credit, to read our turn hurdles. But we're also very confident that somewhere two three years, we'll have credit. So, it's not an issue, I don’t think.

Okay, guys. Thanks a lot.

Well, we get excited about this stuff.

The next question comes from the line of Dan Fannon representing Jefferies. Please proceed.

Thanks. I was hoping to get little more color on Hedge Fund Solutions and some of the strategies that are seeing increasing demands currently and then in the fourth quarter?

Okay. Well, I think the real star there is our Senfina business which is our new sort of proprietary multi-strategy business which has had fantastic returns, we are not allowed to say how fantastic they are, but they are fantastic. And that I think is, we could almost fill an unlimited amount of that number one. Number two, the daily liquidity product we have where we are actually offering institutional quality of returns to individual investors who have been coming out as well, I think we could sell and almost unlimited amount of that right now. And then we are getting some very good responses to our drawdown funds which either by sea capital or by minority stakes and establish fund managers. Those are all sort of hard areas for us. They are all high margin areas for us. And so that's where a lot of the growth is, but in the core hedge fund solution business they continue to raise money, they continue to have money in flow to exceed out flow so I think that's solid as well. And this is the environment where that business shines. That business I mean, it's going to there are risk, there are way to play public markets in the lower risk way much less volatility, 20% to 25% of the volatility they are protected, they are set protect value on the down side, but not quite participate fully to the same degree as the market averages in the up market. So right now, their out performance is sort of really surging.

And just one other area, they are actually getting quite a lot of influence in their mutual fund type product.

Through the other channel.

Great, thank you.

Your next question comes from the line of Devin Ryan representing JMP Securities. Please proceed.

Yes, thanks for taking my question. I appreciate the remarks on the dynamics of the public markets right now. So just understanding that you guys have the ability to be patient, you still have to have a view on when you believe your price objective is going to be met for specific investment, which I assume hasn't pushed out in some cases recently. So you said the capital markets reopen here at current valuation, how do you balance that element of timing on some of the more mature investments today and then related is there an increase in number of positions that we are on a path where an IPO are filed and they’re non-moving to the M&A bucket?

All of our investments are always in both the M&A and the IPO bucket and the recap bucket for that matter. There is not a bucket that we put them in, we are a lot of times when we sell some as a dual process, so I don’t think any of much changed there. We have a number of investments that frankly we will be happy to execute sales at current prices. So we will continue to take some money off, we have a number of assets that are for sale in the private markets that will move forward. To the extent that delays an exit, I guess what we look at is the return we can earn by waiting and we expect to earn 12% to 15% return each year by waiting. So actually we and our LPs and I actually think our shareholders get richer if we wait.

Got it, it's helpful, thank you.

Your next question comes from the line of Alex Blostein representing Goldman Sachs. Please proceed.

Hey good afternoon guys. I will keep this one real quick. So, in your comments around realized performance use and a chunk of that is being driven by just kind of I call it corn yield or sort of the interest, the coupon essentially you guys are getting on your investments. Any sense to help us size and again just getting back to the question of folks who try to assess the downsize and distributable earnings that would be obviously much stickers part of realized carry or realized incentive fees, any way to size what that was in 2015? And the second part to that I guess as we move forward and I hear your comments on deployment and credit opportunities of the yield that you are seeing right now, should we think of those type of incentive fees kind of I guess growing over the next year or so?

Well, this is maybe something we should take offline with Joan or Weston, but I will make general comment. The bulk of our sort of low end of the distributable range of about a buck is fee related interim fees. The other stuff adds a little bit to it but it's not - they are no huge dollars. When you get in our “realized” form of incentive fees, the bulk of that are assets sales, the vast bulk of that.

Yes that makes sense. Thanks.

Your next question comes from the line of Glenn Schorr representing Evercore ISI. Please proceed.

I wonder if you just help fill in blanks throughout the commentary I heard today of the $15.7 billion of capital put to work, I have seen the slides the $5.3 billion in private equity and comments around $2.6 billion in energy in European direct type credit. I am just looking for top down view of like where money is being put to work right now besides things that I just pulled out?

Well, sorry where it's being put to work now?

Well, I apologize in the fourth quarter?

Yes Glenn, out of the $15.7, real estate was a bit more than half of that. Private equity segment was kind of 40% and you cited the corporate private equity component of it and then there is pack ups, which was very active as well in SP. And then GSO is the balance at around w0, I call it 20ish percent of that 15.7. And as we talked about the environment as the year went on, it got more and more interesting for them from the mezzanine standpoint as the leverage markets kind of locked up better.

That deployment for GSO was an all time record quarter of that.

Okay that's helpful. And then last one, where are we on catch up for BCP5, just market did, what it did in the fourth quarter?

Yes, there is I know in overtime we had kind of different metrics to measure this, we talked a bit about percentage through the catch up that was around 83%, a couple of quarters ago and down to 73% or so more recently. And right now it's around 70% now maybe a different way to look at it is kind of what portion of our LPs are in full carry versus catch up and that last quarter I mentioned kind of 50:50 now, it's a little less than 50% and will carry little more in catch up so that will move around based on various factors.

Okay, thanks very much.

Your next question comes from the line of Brian Bedell representing Deutsche Bank. Please proceed.

Alright, thanks for taking my question. Most of them have been asked, maybe just delving a little bit more on the realization and exit backdrop mostly in both the private equity and real estate segments, just looking into 1Q and 2Q in terms of your pipeline and sort of where the market is, can you do and it’s a little hard, always hard to do, but somewhat explain the size the potential for both of the segments over the next two quarters as sort of the market sits now for or we can move back up toward 10 billion type of realization trend, are we going down from current portfolio?

I really don't want to get into projecting realization type quarter going forward, we’re opportunistic, we definitely will have realizations in the market at these prices, but if you want to get some more color from that I think Joan or Weston can talk to you.

As always we move into a new quarter with some contracted sales that we will close in the first or second quarter so there is that.

And do you view more about real estate segment rather than private equity at least right now?

Most likely yes.

Okay. And then just the follow up on energy, just maybe I have missed this but can you just outline again what you have in energy dedicated dry powder and then energy invested, energy currently invested?

I will deal with the dry powder, I think as we mentioned we have $5 billion in private equity of dedicated energy capital and to invest that in every investment that takes about 60% of each investment. Well, today 50, but we will move to 60 so call it somewhere between and the private equity funds take the other 40 to 50 so that you should think of that as $9 billion to $10 billion of dedicated energy capital. And GSO we have a dedicated energy sleeve of about 3.5 billion and there is another billion in – there is another about 1.5 billion in the other products that are associated with that similarly. So it's about $14 billion, $15 billion all in, in terms of dedicated energy and it's virtually all dry powder at this point. In terms of, I am not sure – how much is invested in energy. Michael you want to answer that?

Yes, I think obviously private equity in credit are the main areas of the firm where there is energy. In credit where energy generally as you know is significant portion of kind of the high yield bond market for us across all of our GSO assets, the percent in energy is sort of in the call it low teens. And in private equity as Tony mentioned we obviously have general funds, the BCP funds and then we BP. BP is of course dedicated to energy but importantly those energy investments are sort of half and half aspects that are E&P, oil and gas assets that are directly affected by those commodity prices. And the other half are in sectors like power and renewable that are not so that's sort of the structure of our holdings in private equity.

Okay, great, thanks very much.

Your next question comes from the line of Chris Shutler representing William Blair. Please proceed.

Hi guys good afternoon. On the new products and innovation front can you maybe just give an update on core P, when we should start here a little bit more about that and then beyond core private equity I know you can't mention specific products, but how many other new products you kind of have in the pipeline ready to launch this year?

Core P is a really unique thing. And it's neat because the core plus area in real estate is about three to four times the size of the opportunity market. And our performance across the board and real estate is perhaps the best in the world and has been for very long time. And so, there is enormous potential growth in that business and the deals we have done so far looks like they are really, really attractive from the perspective of our investors. So this is kind of business where it's really like locked in money very long period of time and I have very aggressive expectations for that business, I think I scare all people internally on a regular basis I think that this is we have just done 11 billion in its first two years and it's been a ramp up, we will be able to really hit stride and doing some back of the envelop numbers myself this morning. And because we were looking at projecting sort of growth rate for the firm it's part of the model that I talked to you about. And if we raise when this business is more mature, 10 billion a year or something like that that's almost like a 3% growth in our AUM and we have projected like 8% model it's just like this one product of many products firms. So it's natural for us investors like it, and principally in U.S. we can expand this all around the world and we do have a full of capital. So this is like a wonderful drive to real estate. We have got some other fixed income products looking at its very exciting.

Yes let me address your question. First of all core P which you asked about, we will finish the fund raising early this year and you should start to hear more about it so to speak, later this year we start to do the first deal. In the number of new products across the firm is probably not a terribly meaningful number where we have got, I’d say five to ten really cool new thing, at least one usually several in every major segments and we are working on them all.

It’s really fun, this is great.

Thanks. If you don’t mind, Chris asked, since you mentioned earlier but you are looking at other alt managers, traditional managers all the time just if you were to, I mean, would you ever consider buying a traditional manager and if so what would be the main criteria that you would look at?

We are sort of having evolved to that level of sophistication yet, but if you were to do something like that they’d have to be like special, it wouldn’t just be along only manager because there are interesting numbers on a page. They have to be unusual, they have to have an unusual culture, they have to be something self sustaining, you never want to be buying anything or deleting with anything it’s just sort of a generic thing that has some interesting numbers that you could achieve. You want to be with the best in an area that’s we love that being the best and look at synergies that could work between the business in terms of capital or different types of distribution or something. So, this is not people like ourselves sitting around saying aha, that’s a big area let’s go buy something. We don’t operate that way, we don’t operate that way internally and alternatively, we just don’t do that. And so, it would be a little of I think needle in a haystack, calling the thing but if we ever did something like that you’d say wow! That’s amazing and something really terrific with it. But we’re not sitting around saying we’re out of oomph, when the alternative business that we’ve capped down, once just start wondering just we’ve got nothing better to do and we’ve got to manifest destiny to stupidly grow and so that’s how we think about it.

And I just wanted – accelerate but just because so we don’t see the wrong thing. There is hundreds and hundreds lonely managers that have year old interest in and we are looking for something very, very special for looking at all that would be able to sustain superior investment performance, have real synergies, be a leader, be a lead having something very fresh franchise. I’m not even sure that exist, these one might be unicorns.

So, I wouldn’t be sticking around putting one in your report as Blackstone is looking for. If Blackstone stumbles into it, we know it if we saw it, but it’s not like we are out there hustling around shifting through things and we are about to get surprised.

Understood, thanks for the color guys.

Your final question comes from the line of Eric Berg representing RBC Capital Markets. Please proceed.

Well, thanks very much, thanks for picking me at the end here. Earlier in the call, you in a discussion about the marking to market of the portfolios, you described it as, if I took away the correct impression as being anchored by DCF but sort of mindful of what’s going on in the public market, ignore the public markets but they are not certainly the sole or may not even be the principal driver. And so, my question is this given that the cash flow, the EBITDA of the company, the portfolio companies and the real estate is improving, why conceptually did the mark and the associated unrealized incentive income and carried interests in the December quarter, why was it improved from the September quarter although those numbers were still negative pretty much across the company, if the value of the business is hanging in there on the properties why did the marking and associated incentive income numbers remain negative?

I think there are couple of things Eric, first you have to take into account, if you are looking at realized and unrealized, if you look at total performance fees. And obviously, when we realize things there is sort of the uplift if you will of unrealized going into realized.

I was actually talking about unrealized only.

Right. But every time you sell asset your unrealized goes down, correct?

Yes. Fair enough, thanks a lot.

That is what I mean by flip and that is in those numbers because we had another good realization quarter and that when could strip all that out we had positive appreciation and not as high as in some prior quarters and so that’s why you get a quantum of positive economic income that is positive, but maybe lower in amount than in some earlier time.

Eric, this is Weston, it’s the total performance fee that has to deal with the mark on the asset, not the unrealized performance.

Yes, thank you for that.

Okay. Thanks everybody for your time today, if you have follow-ups please give me a call.

Thank you. Ladies and gentlemen thank you for your participation in today’s conference. This concludes the presentation, you may now disconnect. Good day.