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likely. Mr. Gray also thinks that concerns over the commercial real estate market may be overdone. e When asked “What would get you more interested in investing in BX stock?” the most common response was a market pullback (30%), followed by comfort on the direction of the real estate market (25%), rising returns and visibility on distributions (21%), and a more simplified structure (20%), while fundraising and margin improvement were less important (4%). Chart 61: What would get you more interested in investing in BX stock? 35% 30% 20% 20% 15% 10% 5% 0% Rising Improving Comfort on the A market pullback for A more simplified markets/returns and = FRE/margins direction of the real better corporate/tax visibilityon DE and _ following strong estate market & deployment/returns structure distributions fundraising hedge funds Source: BofA Merrill Lynch Global Research e Mr. Gray thinks the economic narrative has changed for the U.S., from low growth and low interest rates to a more pro-growth outlook. There will likely be lower taxes, less regulation, and more fiscal spending. A potential offset is that deficits from government spending and tariffs could create inflation. Even so, management was Cautiously optimistic on growth. ¢ For Europe, Brexit was the big news and Mr. Gray expects the next couple of years will be somewhat challenging for the U.K, though the bigger question is core Europe, where rates and inflation are likely to be lower for longer. In Asia, China is decelerating, particularly for manufacturing, infrastructure, and real estate which will likely continue though don’t expect a hard landing in China. A trade war between the U.S. and China could be a risk to the downside for China. In India, BX sees accelerating economic growth and falling inflation and interest rates, along with a lot of demand for office space in India. e Mr. Gray does not believe we are in the early stages of the real estate cycle, but concern over a bubble in commercial real estate in the U.S. is probably overdone for a couple of reasons. 1} Supply and demand are reasonable, given modest growth in supply and an economy that is growing. 2) Debt levels aren’t out of hand like in ‘06/07. 3) Cap rates are low at around 5%, compared to ‘O7 when 10yr treasuries were at the same level. Overall, you aren’t going to see the same returns as in the past, but looking at past periods where rates and growth increased, commercial real estate did fine. « In terms of growth, Mr. Gray is optimistic on the outlook. Half of the areas BX invests in today didn’t exist at the time of the IPO, and that culture of innovation, growth, and investing for attractive returns is alive and well. BankofAmerica <2” 42 2016 Future of Financials Conference | 17 November 2016 Merrill Lynch HOUSE_OVERSIGHT_014356