We have a couple of small products today in credit and real estate but right now it’s not a meaningful piece of what we do. We are a persistent group. We do want to try to build scale products in Europe. We’ve got a number of people on the ground, but it’s going to be a little bit tougher sledding but I think over time there should be opportunity because the same outperformance relative to liquid markets. This basic idea of trading liquidity for higher returns makes sense. I think it should happen in Europe, but it’s certainly slower today.
Operator: Thank you. We’ll go next to Brennan Hawken with UBS.
Brennan Hawken: Good morning. Thanks for taking my question. So you clearly built a leading capability in real estate and incredibly impressive. Curious to hear your view about maybe what narrows the bid ask spread in that market. And we heard from Goldman actually earlier this week that they’ve got a portfolio of 15 billion CRE and they’re looking to sell a significant chunk of that and they’ve marked it down 15% across the board to do that. The office position is down 50 right? But I know you’re underexposed to office, so sort of 15 probably more relevant and well, we’re hearing other banks that are coming to market too. So while they’re not all forced sellers, they have different motivations than profit maximizing. So what do you think the implications of these transactions are going to be on the market and is it going to lead to downward pressure on marks?
Michael Chae: Well, I think transaction volume has been slow for the reason we’ve talked about. Obviously the move in cost of capital has certainly slowed things down. I don’t know, given the size of the real estate market, that if any individual transactions are enough to move the market. In fact, I don’t know the specifics of Goldman, but I think that’s a bunch of different companies and portfolios. So it’s not one large trade. I think the market will ultimately clear based on where buyers and sellers are willing to transact. And you’ll see that now, I’m sure, over the coming months as things start to settle in. And if we stay here at this higher rate environment, I think it’s very hard to predict exactly what happens. But ultimately, there will be real estate to buy and real estate to sell.
And with our 66 billion of dry powder, I think we’re going to be in a really unique position. I mean, we raised this $30 plus billion global fund. I think we’ve invested less than 5% of that fund today. We have the vast majority of our Asia fund uninvested, and our Europe fund we’re just raising. So by definition is uninvested. So we think we’re well positioned in this environment, particularly if banks pull back and there are liquidity shortfalls. We’re also raising capital for our real estate debt business. So we think it’ll be a favorable environment. And like everybody, we’ll be watching what happens on the transaction side.
Brennan Hawken: Thanks for that color.
Operator: We’ll go next to Ben Budish with Barclays.
Ben Budish: Hi, there. Thanks for fitting me in at the end. I wanted to ask about BREIT. I know you don’t often comment on the performance of very specific funds, but just since it’s also public and investors are following this quite closely, it looked like there was some kind of nice momentum in performance coming into September. And maybe if you kind of parse out what sort of changed in the month, was it cap rate assumption revisions? Was it a slowdown in operating performance? And is there any color you can share, perhaps on the performance of the hedge and how that either impacted September or how you would expect it to sort of benefit the fund over the next couple of months based on the current outlook? Thank you.
Jonathan Gray: So what I would say on BREIT is you really hit on it in September, the tailwinds in the business were twofold, as you’ve heard from us. I think we did a very good job hedging out the balance sheet for long duration. That’s proven to be very beneficial to the shareholders. BREIT, the second thing is we have a quite sizable position. I think it’s now 8% of the portfolio in data centers. Again, that turned out to be a really, really great decision for our shareholders and has benefited us. And there was very significant appreciation, which we talked about in the remarks. On the headwind side, yes we of course, raised cap rate assumptions in the portfolio in light of the higher movement in the 10-year treasury yield and so those were the forces that you saw reflected in the valuations in the month and the quarter.
Ben Budish: Great, thank you very much.
Operator: We’ll go next to Mike Brown with KBW.
Michael Brown: Okay, great. Thanks for taking my question. Just wanted to touch base on the Insurance channel here. You saw that you had $5 billion of inflows in the quarter. Can you just touch on what were the key contributions there and then maybe expectations for next quarter? And then you could just touch on resolution life specifically. Was that part of the $5 billion inflows this quarter? And how can that partnership progress here over the coming quarters? Thank you.
Jonathan Gray: So, for clarity, I think we had 5 billion from the big four counts in insurance, $7 billion overall because we have some SMAs with other major insurers, but not for nearly as large pieces of their portfolio. I’m not sure I’m going to go into any of the individual clients where the money is coming from and so forth. But obviously some of the clients are issuing fixed annuities, which is a fast growing area that would be namely there, I guess I’d point out, Corebridge and Fidelity Guarantee. And we’re helping them with that by deploying capital on their behalf and generating attractive yields. I think Resolution as a platform has a lot of opportunity around legacy books, closed books, buying those from insurers who are trying to reallocate their portfolios.
And as part of the recapitalization we did with them, we put a significant amount of capital from our LP community into the company. That gives them some firepower to grow. And then I would just add, we’re having other discussions. Investors are seeing what we’re doing, taking up credit quality. I think if you look at the numbers in the quarter, on average, our clients had BBB portfolios. This year we’ve originated on average, A credit quality, fixed income. And the spreads have been 140 basis points higher over comparable liquid BBB’s, so higher credit quality and still higher spreads. And so this is something that our existing clients are happy about, our SMA clients are happy about, and it’s leading to more discussions. I still think we’re in early days, it’s hard to predict the timing of these, but this is becoming something that I think is increasingly important for major insurers to have more of these private credit origination capabilities.
And they’re excited about being partners with us, particularly because we’re not an insurance company. We’re not directly competing with them.
Michael Brown: Okay, great. Thank you, Jonathan.
Operator: Thank you. We’ll take our final question from Arnold Gabla [ph] with BNP.
Unidentified Analyst: Good morning. I just had a follow up question on BXPE. I’m wondering how much capacity you’re warehousing there. Is there an opportunity, I think, to scale up this product rapidly if demand is there, how do you manage that? Is that perhaps by having a large proportion that you can allocate to secondaries to absorb any rapid uptakes? Thank you.
Michael Chae: [Indiscernible] Michael on the first part about warehousing, we have, as we often do when we help support the launch of a product like this, we have, I’d say, relatively modest amount in the grand scheme of our balance sheet in warehouse for the support of the launch of this in the coming months, we expect that will grow somewhat as we approach that point. And then once we’re up and running. The needs from warehousing standpoint will be much more modest. Jonathan, if you want to comment on sort of asset allocation.
