Good day, ladies and gentlemen, and welcome to the Blackstone Third Quarter 2016 Investor Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. Now, I'd now like to turn the conference over to your host for today, Mr. Weston Tucker, Head of Investor Relations. Please proceed.

Great. Thanks, Jasmine. Good morning and welcome to Blackstone's third quarter 2016 conference call. I am 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 as well as External Relations. Earlier this morning, we issued a press release and slide presentation of our results, which are available on our website. And we expect to file our 10-Q report in a few weeks. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control, and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect the firm's results, please see the Risk Factors section of our 10-K. We will also refer to non-GAAP measures on this call, 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 any interest in any Blackstone fund. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent. A quick recap of our results, we reported GAAP net income of $692 million for the quarter and $1.5 billion year-to-date. And year-to-date period was up 20% from the prior year. Economic Net Income, or ENI, grew sharply to $687 million in the third quarter or $0.57 per common unit. Distributable Earnings were $593 million in the quarter or $0.48 per common unit and that equates to a distribution of $0.41. And that will be paid to holders of record as of November 7. With that, I will now turn the call over to Steve.

Thanks, Weston, and thank you all for joining our call. Blackstone delivered a compelling set of results in the third quarter with strong Economic Net Income and substantial Distributable Earnings as Weston mentioned, and another quarter of great fundraising success, particularly when compared to outflows for many traditional money managers. In the past 12 months alone, our limited partners, we call them LPs, have entrusted us with nearly $70 billion in new capital which despite $38 billion in realizations brings us to another record for assets under management of $361 billion. We continue to see strong positive growth in every one of our businesses. Blackstone continues to be the solutions provider our limited investors need, perhaps now more than ever in a world of sluggish growth, record low interest rates, high public market valuations, the resulting very low returns for most asset classes. These challenges seem likely to persist for some time which is causing real problems for LPs. Just to cite a few examples for you, the average endowment in the United States for the 12 months ending June 30 lost between 1% and 3% on their portfolio. The best performing major endowment in the United States that I am aware of earned only about 3%. But most lost money. The average public pension fund, I think, is shocking results, basically earned approximately zero for the last year. In this context, what are they to do? How can a pension fund, which has got an actuarial target of 7% to 8% per year that's invested in a mix of mostly public stocks, fixed income and treasuries but which are returning very little ensure that it can honor its future obligations. Blackstone has successfully delivered investment solutions to these LPs over a period of decades and across all market cycles.…

Thanks, Steve, and good morning, everyone. Blackstone's third quarter results illustrated continued strong momentum in every one of our business lines with each one reporting both year-over-year and sequential growth in revenue and economic income. Investment performance remains strong across the board and we continue to attract significant new capital driving sustained growth in AUM, again, in every business. ENI rose sharply to $687 million, our best performance in the past six quarters, driven by accelerating performance fees and investment income across the businesses. Indeed, in the third quarter, each of our businesses posted their highest level of performance fee revenue in at least five quarters. Total AUM rose 8% year-over-year to a record $361 billion, driven by nearly $70 billion of inflows over the past 12 months. The diversity and scale of those inflows was impressive between $10 billion and $21 billion in each of our business segments. Total fee earning AUM again rose by double digits, up 11% to a record $268 billion. Fee related earnings rose sequentially to $229 million in the quarter despite the first full quarter impact of the BCP VI step-down triggered in May and in advance of BCP VII commencing full fees in early November. Year-to-date FRE was $675 million, up 8% despite the spin of our advisory businesses on October 1 of last year. Adjusting for the spin, year-to-date fee related earnings were up 21% year-over-year reflecting approximately 230 basis points of underlying FRE margin expansion. Now, I'd like to review briefly the highlights of the results for each of our businesses, starting with Real Estate. Performance remained strong across all Real Estate strategies in the quarter, with the opportunistic funds up 3.7% and core+ up 2.9% with continued healthy operating fundamentals evident in substantially all of our global portfolio, as Steve…

We have a fairly sizable queue here, so if everyone could please, on the first round, limit your question to one question and one follow-up, and then come back into the queue if you have additional follow-ups, that would be great.

And our first question comes from the line of Glenn Schorr with Evercore ISI. Please proceed.

Thanks very much. I am curious. I heard your comments on the Real Estate backdrop pipeline, core real estate plus, got it all. I am curious on Blackstone's decision to go the non-traded REIT space in terms of the Blackstone Real Estate Income Trust and mostly, just a question on fee structure of the wrapper that you are going in. I know that goes to the distributor but it seems a little different than everything else you have done in the past.

I think we are basically prohibited at this point in the SEC cycle to be talking about that product. So, I would like to respond to you but we can't, so we won't.

Okay. I appreciate that.

Sorry, Glenn. We will give you another question for that.

No problem, no problem. The flipside, there has been tons of questions on the traditional asset managers on how they are adapting to DoL world, and it usually relates to some version of you get less assets and you charge less fees and that's in the traditional side. For you guys, do you think about it as we've talked in the past pensions have a large allocation, pensions, endowments, others have large allocations to all wealth management clients don't. Can the DoL world, especially with asset allocation models in place, can that actually accelerate the pickup of your products in the wealth channel and are you actively pursuing that? Obviously, the institutional world is a bigger driver of your flows but just curious how you think about it?

Yeah, I think it is a great question. And the approach is really to take institutional quality product and make it accessible to where it wasn't previously. And so a lot of this is pulled from the different institutions who one want to increase the individual allocations which are creeping up but still low single digit and they want it from high-quality asset managers. And when you think about our portfolio going from the most liquid to illiquid in alternatives across the asset classes, we are able to work with them and just design the spoke (33:05) product for those channels. So we think it's a huge opportunity actually in very early stage.

Yeah – and a lot of our products will be – our products are being designed and structured to where they will fully qualify for any Department of Labor standards that we have want or anyone could want, number one. And number two, we are finding that if you take the commission-based salesman out of that, there is actually more appetite in some ways for our products. But as you know, commission-based salesman can sometimes like liquidity because they can buy and sell things and there is activity for its own sake. And so we are finding that some of the investment advisers, they are not commission-based but very good retail clients for us.

Joan, do you have to do anything different or just more of it in terms of penetrating that channel and are you – in other words, are you accelerating your efforts there given that opportunity?

So, we are accelerating the efforts and you do have to do more than just show up. It's a real education process for the advisers and for their clients who again traditionally have not been in this asset class. So it's very much person by person and I think our scale in that sense, hugely benefits us. I mean, what we have put in place just over the last six years, I believe is really unmatched in the alternative industry and we are continuing to move forward.

And I have talked about this before, Glenn. This is not simply just throwing your product out there in these systems and letting it sell itself. If you are going to do this right, you take on a real obligation to these investors to provide them world-class service. So you have to build a real service organization that deals with different kinds of investors in different ways and different products. You also have to educate the intermediaries, the investment advisers, the brokers and so on. They're not going to sell products they are not comfortable with at a fundamental level. So there is a big educational component of this. Then, you have to design products that fit with the different regulatory needs and market appetites all around the world, not just United States. So there is a major product structuring aspect of this. And so if you are going to really do this right, you are building a whole organization and infrastructure. It's not at all casual and have a booth and let someone come and try to sell them a few shares of – or a few bits of private equity. And I think this is one area where our scale and the diversity of our products is a huge advantage, because we can afford to make that investment so that we are a really, really high-quality counterpart for any kind of distribution organization out there to retail investors and essentially no other alternative firm has the scale and breadth of products and quality of products to be able to do that, and just Steve points out, and the brand name.

Great. Thank you.

Thanks, Glenn.

And our next question comes from the line of Patrick Davitt with Autonomous. Please proceed.

Hi. Good morning. Thanks. There's been a lot of press and announcements about hedge fund redemption and fee cuts. And I wanted to ask around that, from two perspectives. One, do you feel like there is an opportunity there for BAAM to have even more pricing power? And two, have you started to rethink your direct investments in hedge funds as a result of those trends?

I guess, I'll take that one. There's a lot of activity in hedge funds and – but it's not so much like the whole industry is under duress despite what you might read is, there are some big winners. There're some sectors losing but there're some big winners too. And what you're really seeing is you're seeing assets flowing from the sectors that have struggled to or distinguish themselves on returns to the sectors that are actually doing quite well. And I think your pricing power is kind of a function of where you are in that equation. The other thing is, there're certain segments – one of the things that's happened with regulation is that they've impacted liquidity and Steve's talked about this over the years, they've impacted liquidity of credit markets. And so certain kinds of asset classes like, for example, credit funds, don't have liquidity that they used to have. That has implications for fund structures. And so you'll see some people may be taking slightly lower fees but having more locked up capital. And we think net-net for our businesses that's a good trade. But as far as BAAM goes, I don't know that BAAM's getting more pricing power necessarily, but I think the fact that the area is – there's a lot of change going on that's good for BAAM. And it's one of the reasons that they're seeing a lot of net inflows in an industry where there's probably net outflows because again, people want someone who really knows what they're doing, where the winners, where the losers are. And so, I think it's net good for BAAM. I'm not sure it's reflected in pricing power so much as AUM.

But remember, BAAM is the largest investor in hedge funds and has very substantial ability to have an impact on fees paid. And that's one of the reasons why people like to invest with us because you get a very good economic thing and hedge fund industry's really total redemption is about 3% this year and BAAM is up. So that is not too bad.

So I probably answered the wrong question. If you are talking about BAAM's ability to extract price concessions from managers, then, yeah, obviously that has gone up. I was more talking about BAAM's ability to charge its investors, but...

That's what I was referring to, thanks. And then the direct investments in third-party hedge funds? Are you still kind of comfortable with that strategy despite...?

In the managed – in the GPs – in the managers themselves?

Yes.

Yes, we have a pool of capital. We are very optimistic that will earn very high returns for its investors. But it's a managed pool of capital. We're not doing it on our balance sheet like some other places.

Okay. Thanks.

And our next question comes from the line of Craig Siegenthaler with Credit Suisse. Please proceed. Craig Siegenthaler - Credit Suisse Securities (USA) LLC (Broker) Thanks. Good morning, everyone. It looks like five larger funds may have just hit their final closes or are pretty close. In core+ and BREP Europe V are two of the larger funds still open in 4Q, excluding the funds that are always open, should we expect a deceleration aggregate fundraising activity as we walk into 2017? And maybe just any other commentary on the fund-raising front would be helpful.

Sure, Craig. Look, we are obviously coming off of an extraordinary 2015 where we raised about $94 billion, LTM we raised $69 billion. This year, I think we said this on some prior calls, year-to-date has been $53 billion and we are working on a really solid year. In terms of the outlook, there's still some significant, in addition to kind of the always-on fund-raise, as you mentioned, significant drawdown funds coming up. We've got next year, possibly a second Asia fund, a third capital solutions vehicle, possibly a third commingled Tac Ops vehicle. So, certainly, the large flagship global private equity and real estate funds were obviously raised in the last couple of years, but there's still chunky drawdown product to come as well as all manner of other products and products under development. And so I think you will see us next year and into 2018 maintaining relative to this year's run rate level, a very healthy level of fund-raising. Craig Siegenthaler - Credit Suisse Securities (USA) LLC (Broker) Great. Thanks for color, Michael.

And our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed.

Hey, guys. Good morning. I want to go back to your point around the opportunistic raise of $1 billion in Europe, obviously at very attractive rate. The balance sheet continues to have lots of liquidity, so I was wondering if you could spend a couple of minutes on the use of that firepower, as you called it. And also secondary to that, anything we can anticipate from you guys on the share repurchase front. I know that tends to come up every quarter but given the valuation level and Steve's comments, I was wondering if there was any evolving thought process there. Thanks.

Sure, Alex. It's Michael and I'm sure Steve and Tony may want to chime in. Look – and obviously, we have grown to expect this question and we are happy to engage on it. We like the balance sheet strategy. We have committed to, first of all as a general matter, to kind of use – paraphrase a term of art. We have a fortress balance sheet that in all environments, all business conditions, all market conditions will more than ensure that our firm will thrive. Not only thrive but capitalize on moments of dislocation in the greater world. In terms of kind of going on offense and our capital strategy and uses of capital, obviously, we think in general we have very attractive internal uses of capital. First, in terms of organic growth, seeding and investing in our own products, the return on assets has been in the 5 times to 20 times level in terms of what a new product will deliver for a balance sheet investment for the firm over a 10-year basis and we continue to see a great universe of opportunities there. And then as you know, on an inorganic M&A basis, strategic basis, we have been very selective in making investments over our post-IPO history. We've done eight of them and they've been – we've been very selective and they've been very successful. They have generated returns as sort of portfolio investments in the 30% annualized rate of return area and we continue to see in all modesty, we think we are the partner of choice for most people who want to do a deal. And so we see lots of things and we are looking at lots of things. And so – and also moreover, we think we carefully manage our share count dilution to help mitigate or negate the need for repurchase. Since our IPO, we have averaged about 0.7% dilution per year in our unit growth and I think in the last five quarters or six quarters, it has been about 0.4%. And if you actually compare that to many of our peers with so-called share repurchase programs on, I think it's pretty competitive. So that's sort of the framework and we never say never. At some share price or repurchase could become more attractive than other capital uses, but we apply very rigorous lens to analyzing that and that lens is not short-term value creation, but long-term sustainable value creation for our shareholders.

Okay. Thanks.

And our next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed.

Hi. Thanks very much. The first question about the retail channel, obviously, you have an extremely compelling case for a lot of your products in the retail channel opposed to DoL. Can you talk about how we can track the progress on this because obviously like you said – I think you said it, it's – the market share is creeping up? But in terms of actually the distribution effort and talking with gatekeepers and getting the product in the channel, having the advisers be educated, maybe if you could just shed some light on what you would characterize as AUM in the retail channel now and then how we would go about tracking that?

Yeah. So, currently today, it's approximately – well, just through the wire houses alone, we've probably raised about $18 billion and that number continues to grow. It's going to be without going into specific product as Tony said, a real mix of illiquid and liquid product and as we grow into new channels within retail, we will be able to go from the ultra high net worth down to a dollar one investors with appropriate product. I think we can start providing you with more regular information on it in terms of – we do often in our presentations breakout at a firm level, how much is retail versus institutional and so we can continue to do that.

Just to add to Joan's point, Brian, inception to date are cumulative percentage of total capital raised and retail has been about 10%. But in recent years, as we have amped up the effort, it has run at between sort of 15% to 20% of the total for the last three years. So that gives you a sense of the trajectory.

And that's in an environment where our drawdown funds are all oversubscribed. So, we're turning away retail demand. And inevitably, because historic institutional clients, we are not going to push them out of the nest when they have been with us for several years. So it could have been much bigger than that.

Right. And that's another good follow-on question, I suppose, in terms of, is there a product creation capacity to satisfy that retail demand or do you think you will be in that dynamic whereby the supply is a little limited relative to the demand?

Yeah. I think each of the channels has different appetites and so if you think about the independent broker dealer channel, they are much more focused on liquid product where we are not currently capacity constrained. And so I think over the next several years, you will continue to see us accelerate that and you will see that build out. And with that, again, we can't talk about specific product, but one of the nice elements of it is that you grow by both inflows and asset appreciation, so it's quite steady and you are not in the drawdown structure of giving back capital and having to reacquire it, if you will.

Right. Okay, great. Thanks very much.

And our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed.

Hey, good morning. Thanks for taking the question. There has been some concerns on commercial real estate, perhaps too much supply maybe in certain markets, maybe some pressure on rents. Just curious if you could talk about what you are seeing in terms of pressures on certain parts of the market and how Blackstone is positioned around that? And just secondly on that, if rates do rise, how do you see that impacting your portfolio. I know you mentioned that historically when rates rise, economic growth is typically growing. But what about if it's not – that's not necessarily the case and economic growth is consistent with what we are seeing today? What happens in a rising rate environment?

Okay, Mike. So in – the markets now is very healthy. It's in a healthy moment for real estate. We don't think there is a bubble and we don't see the amount of new building that presage is a downturn. But at the same time, economic growth may not be spectacular, but it's steady and population growth chugs along at 0.8% and obsolescence and commercial real estate chugs along at 0.4% and the combination of economic growth, obsolescence population growth and not a lot of new building means that occupancies continue to rise. And when occupancies rise, rents rise. When you get those two things with a basically a fixed cost asset, you get very healthy operating income. So that's the general picture in the United States where we could go around the world if you want, but I assume your question is primarily U.S.-based. Now, there are certain segments and certain markets where the pictures a little different based on the regional thing. In Houston, given what has happened to energy, obviously, office market is a little softer. In high-end residential pretty much all over the world, condos and things like that, the market is soft. Fortunately, we don't do those. And you have, I think, New York City we have got near record building but at the same time, the city is doing very well and the market is in a stable position. As rates rise, obviously, cap rates will sneak up but the drop in rates was not fully passed through on cap rates. In other words, a spread over base rates came up. So as rates rise, some of that will be absorbed we think by a return to more normal spreads. And we are not really in the business of betting on cap rates staying where they are. Usually, we buy something and we expect on exit cap rates to be higher anyway. That's what we underwrite to. So that's our premise and we think that as long as the environment stays healthy, it doesn't have to be hot by any means. It just has to stay healthy the way it is today then rising rates are what we are expecting and we're going to get our returns. And again, we make our money by – particularly in the BREP fund by buying un-stabilized assets where there is value improvement, improving those assets, converting it into core real estate which has a fundamentally different lower cap rate than what we pay and being able to create value that way.

Great. Thanks, Tony. And if I could just ask a follow-up for Michael, you quantified the Hilton monetization I think around $0.27 that you get through the (51:56) first quarter of 2017. Just given that you have locked in the sales price here, how should we think about the impact to ENI in the fourth quarter? Do you mark up that position to the sale price? Is there any sort of discount? And then how should we think about the moving pieces around the portion that is the BCP V fund given that is kind of sitting right at the 8% craft? Should we think about a catch-up at around 80% or so or something less?

Good question, Mike. And on the first part, I guess, we will see, you are saving us having to do a lot of individual questions to help you guys – call it, to help you guys with your models. In terms of a markup prior to the deal, we will observe our normal policy where, say, at the end of the fourth quarter we will look at deal certainty and so forth and timing and make a decision. I will say in terms of kind of the quantum of ENI pickup for that state which we are selling at that price, all else equal it would be in the $100 million area in terms of pickup to ENI. As for your question on BCP VI, Mike, was your question in terms of how the Hilton sale will affect the movement? I think I mentioned quickly in my remarks that one of the great benefits of this Hilton stake sale will be – it will substantially close out that preferred return shortfall for BCP V that I mentioned about three quarters of it, and put us in a position to generate cash carry again in that fund in sort of as early as the first quarter.

Got it. Okay. And then, I guess, just the question was also around the ENI aspect of that in the fourth quarter if there's any sort of catch-up. Is that coming through? I think you mentioned $100 million areas of that, I guess is reflective of any sort of catch-up that comes through?

The $100 million is kind of across the firm in aggregate.

Got it. Super. Thank you.

And our next question comes from the line of Gerry O'Hara with Jefferies. Please proceed.

Great. Thanks for taking my question. I think I heard on the call or prepared remarks that roughly 67% or I guess, two thirds of the BAAM segment was now above high water, and I was just curious if we get an update as to where the remaining third was with respect to those hurdles?

Sure, Gerry, 67% at the end of September and – versus 10% at the end of March, which just shows you how quickly these things can move around with a bit of return. One way to think about it is subsequent to the end of third quarter, about a 2% further appreciation in the BAAM composite would take that 67% to about 90%.

Okay. Helpful. And then just a follow-up, I think earlier this morning, it sort of – a question came up around capacity and expanding into new sectors or asset classes that perhaps Blackstone hadn't been before. I was hoping you might be able to maybe be a little bit more specific or give some sense of what those areas or new product development might entail? Thank you.

Well, I don't think we want to be terribly specific until we've done it for a lot of obvious reasons. But you will be able to look at the big alternative sectors and nowhere we're not and you can assume that we're thinking about all of those. In addition, while our most developed business real estate is heavily present in all regions of the world, plenty of our other businesses are really heavily concentrated still in Western markets, so there's geographic expansion. Then, I think there is – we're working on some interesting applications of technology to drive new products, and I think those would be some interesting products there which will probably be lower fee products per dollar of AUM, but quite profitable because of the cost structures, and could be very, very large in terms of AUM. And then finally, I talked generically about longer duration products that are where you keep the assets and so the AUM compounds and you also get the appreciation of the net asset value as the assets grow in value. So we feel we have plenty of choices without getting too specific about precisely what products went.

Understood. Thank you.

And our next question comes from the line of Mike Carrier with Bank of America. Please proceed.

Hi, thanks guys. Just on the Private Equity side, the returns in the quarter was pretty strong despite the public side, not apparent as well. So I just wanted to get some perspective on the private side in terms of the portfolio, trends and probably most specifically, in BCP VI, just given the strength that we saw in the quarter there?

Sure. On the private side, Mike, it was pretty widespread or spread around, so not one single theme. So our energy investments did very well as we alluded to. We have certain assets that are in queue for – to be sold, contracts to be sold and there was some pickup from that as we moved towards closing. And then really, it varied by region. We had assets in Asia that appreciated nicely, assets in the U.S. and assets in Europe, so kind of multiple themes around the world as a general matter, energy and also some assets that are on their way to being sold.

Okay. And, Mike, just on the expenses, so they definitely came in better this quarter. I know you guys usually look at it like on a year-to-date basis, but it did drive a decent amount of improvement in the FRE margin. I understand going in next year you have the fees coming on, but just – how should we think about expenses as those fees are coming on and where that will take the FRE margin?

Sure. Look. We had both kind of on actual and an underlying basis adjusting for the spin, good FRE margin pickup as you saw. Given the trajectory we are on in terms of the fee revenue top-line, that will be good for margins next year and if you break it down, one thing that's sort of embedded in that is our non-comp expense declined in terms of year-over-year comparisons, and that was in part, not wholly, but in part because of the spin-off of the advisory business.

Yeah. I just want to comment. We try to run – we don't talk much about this because we tend to look at the opportunities of the market and the growth and so on. But we try to run here a very tight ship expense-wise and we try to be very disciplined in holding our comp ratios and finding new ways through technology and consolidation and changing our business model to drive savings. And we are very, very focused on that. It is one of the parts of Blackstone I think we are particularly good at and we never talk about.

Okay. Thanks a lot.

And our next question comes from the line of Devin Ryan with JMP. Please proceed.

Thanks. Good afternoon. Maybe first one here just on the outlook for the CLO business broadly and then with risk retention rules coming later in the year. There had been some press around firms looking at some different structures just to optimize returns there. So I'm not sure if there's anything you can share around any potential changes that you might be thinking about making on this front and then if there is, how we should think about implications on either the economics or whether those might put you in a better position to capitalize on some opportunities in the space?

Sure. I'll start.

Michael is going to start and then I'll chime in.

So, Devin, now, first of all, stepping back, as I mentioned in my remarks, our CLO business is really, really strong. We're basically a global leader. We are the biggest manager, have the most issuances in the last four years or five years. And the performance has been really good. So it's a very good business for us, an important one and we do it in a high quality way. In terms of the risk retention rules and we know there has been some press on this, you won't be surprised to hear that since the rules were promulgated which obviously won't go into effect for another year or so, we assessed it very carefully with all the right advisers and worked through what the right structural design was. And we are very comfortable and we intend to utilize vehicles that are designed to fully comply with both the letter and the spirit of the rules. Period. I think in terms of what it means for the business, our CLO businesses are attractive and perform well. And so as an economic and investment matter for the firm, we obviously, first of all, have ample balance sheet resources going back to the discussion about our uses of attractive use of capital. Ample balance sheet resources to make the investment required to capitalize the vehicles in the future. And moreover, we regard those required investments as quite attractive actually from a firm point of view. And then, I think in terms of our competitive position, we think that, if anything, it will only potentially further our competitive advantage because for much of the CLO competition out there with more narrow access to resources, less scale, this will be a more challenging proposition for them.

I think that's a very complete answer. The only thing I would add is from your standpoint, the added capital that we might put up to drive this business will be small in the great scheme of things.

Okay, very helpful answers. Thank you. Just a follow-up here, maybe bigger picture and I understand this might be a little bit of a tough one to answer, but just given the comments that you made around LP yield demand, when you think about the pace of AUM growth from here and the various buckets of where that is going to come from, and ultimately what AUM could look like a few years from now, so when you look into the future, do you see the mix shifting to lower-yielding products, I guess, relative to where it is today? And if that is the case, just because maybe there's more demand there, how does that impact the economics on every dollar of AUM?

I'll take a shot at that, because there is no right answer. It's like speculating on the future. I see, Steve (sic) [Devin] (1:02:49), that the alternative class is going to continue growing and the reason is there is safety, there is high return and there is fundamentally no place else to go. And so that's a wonderful position. And we'll be like an army that's moving forward on all fronts. So there will be a variety of different products that will be expanding into two major channels. One is the institutional channel and the other is the retail channel. What's going on in the institutional channel is that limited partners are going to be putting out more and more money, but they are going to be doing it to fewer and fewer general partners. This is a huge trend. I mean, one very large institution just said they wanted to cut from 100 GPs down to 30 GPs. And we are in a unique position and so they basically asked us how much money more or less could they just give us. And that's going to be repeated in a variety of different areas. It's not a breakthrough, it's happening already. And that trend, I think, will accelerate. And there will be a variety of products that can be sold to meet different needs in the institutional channel but in the retail channel, there is a whole range from very high return to much more for us a low return but for retail customers is great return. And so that will be lower margin, but the potential for growth is very, very large. So this is a situation where basically everything is working and everything is going forward. And so we don't think as much as you might expect about exactly what the margin is of each product. We think about what's good for individual customers, and if we can deliver something to them that makes them really happy, then each of those products or verticals will have very substantial growth and it will all come together in some way that's a very happy outcome. I am not really particularly guilty of sloppy thinking but I have learned that it is difficult to know exactly what the future is going to be except whether it's going to be really good or whether it's going to be not so good or whether it's going to be bad. And my view is that we are in a really great series of fundamentals with more and more products into two major markets with the best brand name in the world. We believe in the alternative space. And so we are in the really good zone.

And just to add on to that...

Let me just – just for your model, let me just make a couple of points. Some of these products that have lower revenue per AUM are not necessarily by any means lower margin because they have inherently lower cost structures. I would say maybe our highest margin business could be BAAM with the lowest revenue per AUM. And Private Equity which could arguably have the highest revenue per AUM is not a particularly high-margin business today. So it's a mistake to equate revenues to margins, number one. Number two, a lot of the additions that Steve is talking about are – we already have the foundation and the infrastructure so we can add a lot of AUM, all incremental revenues and very low incremental cost. So I think this focus on is it going to be lower margin, by which most people mean lower revenue per AUM is misplaced actually. We are in a business that the structure is wonderful. Not only do we have locked-up capital, but with fixed costs and the capabilities we have, incremental revenues are extremely profitable.

In fact, we operate with great operating leverage. That's another way they talk about it in business school.

In terms of the numbers, when we do our long-term models which we constantly update, the weighted average management fee just has actually been fairly stable in the last handful of years. It's quite stable for the long-term actually.

Great. Okay. Well, I really appreciate all the perspective and thanks for taking my questions, guys.

Thanks. Devin.

And our final question comes from the line of Chris Shutler with William Blair. Please proceed.

Hey, guys, good afternoon. Just one quick one. On core+ real estate, I know you hit the three-year point here soon where some of those few of you are going be able to crystallize. I know it is going to start small, but can you just give us some sense of how that could benefit DE in 2017 and 2018?

Chris, we will see management fees immediately. The performance fees are generated usually three years after the LP comes in, so we should start seeing meaningful performance fees in 2018.

And as you know, those performance fees under that structure will be taken on an unrealized basis, not just a realized basis.

Yes. Okay.

We will actually get the cash but without having to sell the assets based on the market, so crystallized similar to our Hedge Fund Solutions business, it will just be in a three-year cycle rather than a one year cycle.

Were you asking for like magnitude of revenue or profit or something out a few years? Was that your question?

Yeah, kind of magnitude of how it could actually impact the Distributable Earnings.

Yeah. It will be dependent on the growth of the platform. Today, it's about $13 billion after three years. As you know, it will compound with the NAV, so if we achieve our targeted level of returns, that will continue to grow and we will add assets. But it's tough to know the exact AUM.

Well, we obviously model this. The revenue-generating potential of this program is very large.

Very large.

In terms of crossing the $100 million of annual revenue mark. That is kind of – there is visibility on that. And so we are very excited notwithstanding there are some variables in the rate of growth going forward.

Yeah, understood.

When you think about assets generally, just reading through a lot of your reports on peer companies, I would say one thing that is quite different is, and you can look all the way back to when we went public, we are not tied to this step function fundraising where we are raising a lot of assets and then we are investing, selling them down where AUM and fee earning AUM drops and then we have to wait a period to raise again. We really have never had that and it's a combination of really scale businesses in these different areas that are on different fundraising cycles and also, the build-up of perpetual assets where you don't actually sell those down and give them back. And that will only continue to increase with the product you mentioned as well as several others and I think that will continue to distinguish the steadiness of our fee earning AUM and earnings generally.

Makes sense. Thank you.

I would now like to turn the conference back to Mr. Weston Tucker for closing remarks.

Great. Thanks, everyone, for your time today and please reach out with any questions.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. You all have a great day.