Fundamentals Are Yet to

Get Their Day in the Sun

OCTOBER 2022

Joseph Zidle
Chief Investment Strategist
Senior Managing Director

Byron R. Wien
Vice Chairman

Blackstone
To receiveInvestment Strategycommentary
future market publications, please email BlackstoneStrategy@Blackstone.com
TABLE OF CONTENTS

I Introduction 2

II Global Recession Risks On the Rise 4

III Inflation May Have It's Peaked, But It's Sticky 12

IV Coordinated Global Tightening Cycle 19

V Assessing Today's Turbuluent Markets 25

VI Longer-Run Trends to Consider 34

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I. Introduction

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INTRODUCTION
Acknowledging the Rising Recession Risk
In recent quarters we have continued to highlight the important
strengths in the US economy—some of which remain, such as robust
labor markets, healthy household balance sheets, and solid
consumption patterns. In addition, recent data have signaled that
headline inflation may have finally peaked as energy prices drift lower.
However, we have consistently held the view that inflation would be
sticky, and that the markets were underappreciating the lengths to
which the Fed would go to tamp down price increases.
Until recently, market pricing and consensus forecasts have signaled an
unwillingness to acknowledge these views, but now that they are being
actualized, the risks of recession in the US and globally should not be
underestimated. We think the UK is likely already in one, and the
Eurozone will be there sooner than later. China’s growth continues to
sputter under the weight of ongoing zero-COVID lockdowns, while
emerging markets struggle with the inexorable rise of the USD in
2022YTD. Market hope has sprung eternal that these challenges would
resolve themselves on their own, with inflation drifting down such that
central banks could avoid tipping their respective economies into
contraction. That seems like wishful thinking now, as the world enters
the most coordinated monetary policy cycle in decades, if not ever.
Markets May Be Giving Up on Fighting the Fed
A prime example of this wishful thinking has been the persistent trend
wherein markets have priced in a path for Fed policy that has
consistently lagged our view and the Fed’s own projections. In last
quarter’s presentation, we noted that markets were pricing in a
terminal rate of 3.5%, but that we thought the Fed would have to do
more. Since last quarter, markets have shifted rapidly toward our
view, and are no longer fighting the Fed. Both market pricing and Fed
projections currently imply a terminal rate of at least 4.5%.
Now, the question is whether the Fed will ease off its plans or
dramatically lower rates in response to a slowing economy. The trouble
for that view is that certain key inflationary drivers have yet to signal a
durable downward trend, and as such, the Fed may opt to keep rates
Note: As detailed in the “Disclaimers” section, the above and all subsequent commentary in this presentation reflect the personal views of Joseph Zidle, Senior Managing Director, and Byron Wien, Vice
Chairman, and do not necessarily reflect the view of Blackstone.
Blackstone Investment Strategy
elevated for longer. We have been sharing our view that this would be
the case, and recent comments from Fed policymakers indicate a
willingness to do just that. Because although the latest US Consumer
Price Index reports show that headline inflation has all but certainly
peaked for this cycle, there continues to be underlying momentum for
inflation, ranging from rapid wage growth to accelerating shelter
inflation.
Taking Stock of Market Turbulence
To be sure, markets are acknowledging the risks. Investors have felt
historic pain this year, with the traditional 60/40 portfolio experiencing
the worst YTD drawdown in the history of the US Aggregate Bond Index.
This coordinated stock-bond volatility comes as both asset classes grind
lower amid slowing growth, high inflation, and the end of the 40-year
bull market in bonds. Unfortunately, there is likely to be more
turbulence ahead. Because while earnings estimates have flattened
out and in some cases are being revised downward, estimates for the
S&P 500 are hovering at record highs for next year. S&P 500 multiples
have compressed, but this has been almost exclusively due to falling
prices. Now that analysts are beginning to cut earnings estimates,
multiples will be rising again unless markets fall further.
With our view that growth is slowing significantly, and that inflation
and rates will be elevated for some time, this puts increasing pressure
on profit margins, which sit precariously at record highs right now.
Further margin expansion is not the likely outcome in coming quarters,
and as such, more volatility should be expected in equity markets. This
environment has challenges for bonds, too. The relationship for stocks
and bonds is not constant, and periods of higher inflation are associated
with more positive correlations between the two asset classes. This
means that this year’s pain for the 60/40 portfolio may not be a one-
time aberration. It should prompt everyone to reconsider the
traditional assumptions that have underpinned investment strategies,
and to consider anew what solutions exist that can provide
diversification and attractive risk-adjusted returns in this uncertain and
turbulent environment. With that, let’s jump in.
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II. Global Recession
Risks On the Rise

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EUROPE OUTLOOK

Recession probabilities higher in European economies,

largely thanks to the higher energy inflation they face
Consensus Estimates of Recession Energy CPI in US, UK and EU(2)
Probability in Selected Economies(1) (YoY%)
(over next 12 months)
100% 60%

90% 50%

80% 40%

70% 30%

60% 20%

50% 10%

40% 0%

30% -10%

20% -20%

10% -30%
2001 2005 2009 2014 2018 2022
0%
Germany Eurozone UK Italy France US US UK EU

(1) Source: Bloomberg, latest consensus forecasts as of 10/18/2022.

(2) Source: US Bureau of labor Statistics, U.K. Office of National Statistics, Eurostat and Bloomberg, as of 9/30/2022.

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CHINA OUTLOOK

China Real GDP(1)

(YoY%)

16%

12%

8%
Current estimates are for
4% ~3% real GDP growth in
2022, which would be
0% the lowest since 1976
(excluding 2020)
-4%
1976 1981 1987 1993 1999 2004 2010 2016 2022

Total China Residential Property Starts and Sales Volume(2)

(YoY%)

60%
40%
20%
0% China’s historic property
-20% market downturn is a
-40% continued headwind for
the economy as it faces
-60% rolling COVID lockdowns
2016 2017 2019 2020 2022

Starts Sales

(1) Source: Bloomberg, actual data as of 12/31/2021. Data thereafter represents consensus forecasts.
(2) Source: Bloomberg Intelligence, as of 8/31/2022.

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RECESSION CHECKLIST

Tech Housing COVID-

Bubble Bubble 19
Indicator Description (1999) (2007) (2020) Current Note: Current

Primary Indicators (“Sufficient Conditions”)

 Signals the start of recession when the

Unemployment 3-month moving average of the Unemployment fell in Sept. 2022,
(“Sahm Rule”) unemployment rate rises 0.5% or more and Sahm Rule indicator is at zero
relative to the trailing 12-month period

Leading Economic  Growth in LEIs peaks and turns negative LEI growth turned negative in July
Indicators Growth before recession 2022 and fell to -1% in August 2022

Yield Curve:  Inversion preceded each of the last six Spread was inverted by an average
10Y/2Y Spread recessions, with no false positives of 34 basis points in Sept. 2022

Secondary Indicators (“Necessary Conditions”)

 Growth of 4%+ creates concern of a Wage growth currently 5%+ YoY; Fed
Average Hourly wage-price spiral
Chair Powell calls labor market
Earnings Growth  The Fed hikes to front-run inflation,
“extremely tight” in Sept. 2022
and overtightens

Profits growth remains positive and

Corporate Profits  Year-over-year growth always turns estimates for earnings growth in
Growth negative before recession
4Q’22 and CY2023 remain positive

 The spread between consumer Consumers are highly pessimistic

Consumer confidence on “future expectations”
about future expectations relative
Confidence less “present situation” turns negative
to their current situation
and troughs before recession

Source: Blackstone Investment Strategy, represents latest available data for each measure as of 10/18/2022.

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AVERAGE CHANGE IN INDICATORS AROUND ALL RECESSIONS SINCE 1970

Unemployment Rate 10Y-3M Treasury Spread

(average change around onset of recession) (average change around onset of recession)
8% 3.0%

7% 2.0%

6%
1.0%
5%
Current
0.0%
4%
Current
3% -1.0%
(18) (12) (6) 0 6 12 18 (18) (12) (6) 0 6 12 18
Number of Months Relative to Recession Onset
Number of Months Relative to Recession Onset

ISM Manufacturing PMI Leading Economic Index (YoY%)

(average change around onset of recession) (average change around onset of recession)
56 4%

53
0%
Current
50 Current

-4%
47

44 -8%
(18) (12) (6) 0 6 12 18 (18) (12) (6) 0 6 12 18
Number of Months Relative to Recession Onset Number of Months Relative to Recession Onset

Source: Blackstone Investment Strategy, Bureau of Labor Statistics, Federal Reserve, ISM, Conference Board and Bloomberg, as of 9/30/2022 (leading economic index on one-month lag). Represents the
average of all recessions since 1970 (eight observations).

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BOTH MONETARY AND FISCAL POLICY ARE A DRAG ON US GROWTH NOW

Fed continues to tighten as growth slows, while the US is

facing the largest budget deficit reduction since 1947
Federal Funds Rate and Largest Post-War Reductions in
Real GDP Growth(1) US Federal Budget Deficit
(% of GDP)
6% 15%

5%
12% CBO Estimate for 2022
Deficit Reduction
4%
9%

3%

6%
2%

3%
1%

0% 0%
Dec-21 Jul-22 Feb-23 Sep-23 1946 2022 1947 1969 1951 1948 2013 1960 1987 2012

Fed Funds Rate Real GDP (YoY%)

Source: Blackstone Investment Strategy, Federal Reserve, Bloomberg, Strategas Research Partners and CBO estimates, as of 10/3/2022 (Bloomberg consensus forecasts, as of 10/18/2022).
(1) Dotted lines represent market pricing for the Fed Funds rate, as implied by futures markets, and consensus forecasts for US real GDP growth.

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FISCAL POLICY MAY BE CONSTRAINED IN COMING YEARS

Federal debt has surged, but record low rates allowed

debt service as share of GDP to remain relatively low
US Federal Debt US Federal Government Interest Expense
(% of GDP) (% of GDP)

130% 5.25%
+4x

110% 4.50%

90% 3.75%

-50%

70% 3.00%

50% 2.25%

30% 1.50%
1940 1953 1967 1981 1994 2008 2022 1947 1962 1977 1992 2007 2022

Source: Blackstone Investment Strategy and Bureau of Economic Analysis, as of 6/30/2022.

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SERVICING THE FEDERAL DEBT

Now, federal interest expense is set to increase quickly

Nearly 50% of debt matures in the next three years and is likely to be refinanced with higher rates

US Outstanding Marketable Sovereign Debt US Government Debt Interest Costs

(by maturity timeline) (as share of tax revenues and weighted average cost)

19% 9%
27.5%

22.0% Weighted Average Coupon = 1.7%

16% 7%
Weighted Average Years = 6.5

14.8%
13% 5%

10.6% 10.7%

7.9%
6.6% 9% 3%

6% 1%
0-1 YR 1-3 YR 3-5 YR 5-7 YR 7-10 YR 10-20 YR 20+ YR 1990 1994 1998 2002 2006 2010 2014 2018 2022
Net Interest Cost as % of Tax Revenues (LHS)
Weighted Average Cost of Marketable Debt (RHS)

Source: Strategas Research Partners, as of 8/31/2022 (debt cost) and 9/30/2022 (debt maturity).

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III. Inflation May Have It's
Peaked, But It’s Sticky

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INFLATION IS A GLOBAL PHENOMENON

Global inflation highest in at least two decades, and

evident in both advanced and emerging economies
Consumer Price Index Growth
(YoY % change)

12%

10%

8%

6%

4%

2%

0%

-2%
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

World Average Advanced Economies Emerging Market Economies

Source: Haver Analytics, as of 8/31/2022. “World Average” is calculated by Haver Analytics by averaging the composite CPI of Advanced Economies and the composite CPI of Emerging Market Economies,
weighted by their shares of GDP in US dollars in 2015. “Advanced Economies” and “Emerging Market Economies” are calculated by Haver Analytics by averaging the CPIs of 22 advanced economies and 51
emerging market economies, respectively, weighted by each individual economy’s share of total nominal GDP in 2015.

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CONTINUED UNDERLYING MOMENTUM IN US INFLATION

Inflation remains high in the US, with continued

momentum in alternative measures of inflation
US PCE Measures(1) US CPI Measures(2)
(YoY%) (YoY%)

8% 8%

6% 6%
Many of these measures were at or
below 2% in 2021, when the Fed
believed inflation was “transitory”
4% 4%

2% 2%

0% 0%
2005 2007 2010 2013 2016 2019 2022 2005 2007 2010 2013 2016 2019 2022
Core PCE (SA) Core CPI (NSA)
SF Fed Cyclical Core PCE (NSA) Atlanta Fed Core Sticky CPI (NSA)
Dallas Fed Trimmed Mean (NSAAR) Cleveland Fed 16% Trimmed-Mean (SA)
Cleveland Fed Median (SA)
Underlying Inflation Gauge: Prices-Only (NSA)

(1) Source: US Bureau of Economic Analysis, Federal Reserve Bank of San Francisco, Federal Reserve Bank of Dallas and Bloomberg, as of 8/31/2022.
(2) Source: US Bureau of Labor Statistics, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Cleveland, Federal Reserve Bank of New York and Bloomberg, as of 9/30/2022.

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SIGNS INFLATION HAS PEAKED

Money supply growth has collapsed, while goods

inflation continues to decline rapidly
US Money Supply (M2) Growth CPI: All Goods Less Food and Energy
(YoY%) (6-month CAGR)

30% 16%

24% 12%

18% 8%

12% 4%

6% 0%

0% -4%
1990 1995 2000 2006 2011 2016 2022 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22

Source: Blackstone Investment Strategy, Federal Reserve, Bureau of Labor Statistics, and Bloomberg, as of 8/31/2022 (money supply) and 9/30/2022 (CPI).

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SIGNS INFLATION IS STICKY

Continued sequential momentum in core services while

the CPI for shelter continues to accelerate on YoY basis
CPI: All Services Less Food and Energy CPI for Shelter (Rent Components)
(6-month CAGR) (YoY%)

9.0% 8%

7%
Continued sequential …while the CPI for rents
7.5% momentum in the CPI for continue to reach new multi-
6% decade highs on a YoY basis
core services…
6.0% 5%

4%
4.5%
3%

3.0% 2%

1%
1.5%
0%

0.0% -1%
Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 1983 1987 1991 1996 2000 2004 2009 2013 2017 2022

Core Services CPI: Owners' Equivalent Rent

Core Services: Shelter
CPI: Rent of Primary Residence
Core Services: Medical Care

Source: Blackstone Investment Strategy, Bureau of Labor Statistics and Haver Analytics, as of 9/30/2022.

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CONTINUED ELEVATED WAGE AND LABOR COSTS

Wage growth and employment costs have not durably

slowed, a continued source of sticky inflation
Average Hourly Earnings and Atlanta Employment Cost Index
Fed Median Wage Growth (QoQ%)
(YoY%, 3-month moving average)
7% 1.6%

6%
1.2%
5%

4% 0.8%

3%
0.4%
2%

1% 0.0%
1997 2002 2007 2012 2017 2022 1997 2002 2007 2012 2017 2022
Average Hourly Earnings Median Wage Growth

Source: Blackstone Investment Strategy, Bureau of Labor Statistics, Federal Reserve Bank of Atlanta and Bloomberg, as of 9/30/2022 (Employment Cost Index available quarterly, as of 6/30/2022). Average
hourly earnings are for production and nonsupervisory employees.

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SENSITIVITY ANALYSIS: SHELTER CPI DRILL-DOWN

Implied Change in Headline CPI (Shelter vs. All Items Less Shelter)(1)
(YoY)
CPI: All Items Less Shelter
0.00% 2.25% 4.50% 6.75% 9.00% 11.25% 13.50% 15.75% 18.00%
2.6% 0.9% 2.4% 3.8% 5.3% 6.8% 8.2% 9.7% 11.2% 12.6%
If Shelter CPI were
3.6% 1.2% 2.7% 4.2% 5.7% 7.1% 8.6% 10.1% 11.5% 13.0% to remain at
4.6% 1.6% 3.1% 4.5% 6.0% 7.5% 8.9% 10.4% 11.9% 13.3% current levels (6.6%
5.6% 1.9% 3.4% 4.9% 6.3% 7.8% 9.3% 10.8% 12.2% 13.7% YoY), and CPI for
CPI: 
6.6% 2.3% 3.8% 5.2% 6.7% 8.2% 9.6% 11.1% 12.6% 14.0% All Items Less
Shelter
7.6% 2.6% 4.1% 5.6% 7.0% 8.5% 10.0% 11.4% 12.9% 14.4% Shelter were to fall
8.6% 3.0% 4.5% 5.9% 7.4% 8.9% 10.3% 11.8% 13.3% 14.7% to zero, headline
9.6% 3.3% 4.8% 6.3% 7.7% 9.2% 10.7% 12.1% 13.6% 15.1% inflation would
10.6% 3.7% 5.1% 6.6% 8.1% 9.6% 11.0% 12.5% 14.0% 15.4% remain above 2%...

Implied Headline CPI at Assumed YoY Increases(2)

Assumptions  Weight in       Contributions to 
(YoY Change) CPI Basket Headline CPI YoY
…But if shelter inflation were
Food 1.7% * 14% = 0.2%
to return to 3.0% (50bps above
Energy 1.6% * 8% = 0.1% its historical average), and all
Shelter 3.0% * 33% = 1.0% other components were to
Used Cars and Trucks 1.1% * 4% = 0.0% return to their respective
All Other Items 1.4% * 42% = 0.6% historical averages, then
Headline CPI  100% 2.0% headline inflation reaches 2%

Source: Blackstone Investment Strategy calculations, Bureau of Labor Statistics, and Haver Analytics, as of 9/30/2022. Note: Special aggregate indices excluding the respective component is calculated
using the BLS method for constructing special CPI indexes and their percent change.
(1) Center row and column represent latest actual values.
(2) Values in first column represent each component’s historical average from 2010 to 2019, except for shelter, which averaged 2.5% year-over-year over that period.

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IV. Coordinated Global
Tightening Cycle

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COORDINATED GLOBAL TIGHTENING

This is one of the most coordinated global monetary

policy tightening cycles in modern history
Number of Global Policy Rate Rises and Cuts
24

18 GFC
Asian Currency
Mexican Crises / LTCM European
12
Peso Crisis Debt Crisis

(6)

(12)

(18)

(24)
1970 1983 1996 2009 2022

Rises Cuts Net Rate Increases

Source: BIS and World Bank. Note: Three-month average of the number of policy rate rises and cuts over the month for 38 countries including euro area. The last observation is July 2022.

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SLOWING GROWTH + RISING INFLATION = RISK OF POLICY ERROR

Forecasts for growth and inflation in 2023 have

deteriorated even as central banks hike aggressively
Evolution of Global GDP Growth and Central Bank Policy Rates(2)
Inflation Forecasts for 2023(1) (average)
(YoY%)
5.00% 2.0% 9.5%

4.25% 1.5% 8.0%

3.50% 1.0% 6.5%

2.75% 0.5% 5.0%

2.00% 0.0% 3.5%

Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 2010 2012 2014 2016 2018 2020 2022
Growth Inflation
Developed Markets (LHS) Emerging Markets (RHS)

Source: Blackstone Investment Strategy, Haver Analytics, International Monetary Fund, Consensus Economics and World Bank, as of 8/31/2022.
(1) Consensus forecasts of global growth are weighted by GDP in US dollars based on 86 countries, and consensus inflation forecasts are based on median based on 83 countries.
(2) Developed Markets” and “Emerging Markets” are calculated by Haver Analytics by averaging the policy rates of 15 developed markets and 21 emerging markets, respectively.

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RECENT RISE IN INTEREST RATES, WHILE RAPID, HAS FURTHER TO GO

Despite rising policy rates, global short-term rates (at

least in the G7) remain low in an historical context
Average of G7 Countries’ Short-Term Interest Rates

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

-2%
1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022

Blackstone Investment Strategy and OECD, as of 9/30/2022. Short-term interest rates are generally averages of daily rates, measured as a percentage. Short-term interest rates are based on three-month
money market rates where available. Note: Data availability varies for each country; data become available for five countries as of 1978 (the start of the time period in the chart). Data for the UK become
available in 1986 and data for Japan become available in 2002.

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ARGUMENTS THAT THE FED HAS MORE TO DO

Inflation remains historically high relative to interest

rates, while labor markets are still overheated
Fed Funds Rate Always Exceeds Rate of Labor Demand Continues to Exceed the
Inflation Before Tightening Cycle Ends Number of Available Workers
(percent of population)
21% 1 67%

0.9
18%
0.8 64%
15% 0.7

0.6 61%
12%
0.5
9%
0.4 58%

6% 0.3

0.2 55%
3%
0.1

0% 0 52%
1962 1972 1982 1992 2002 2012 2022 2001 2004 2007 2010 2013 2016 2019 2022
Recession PCE Deflator Fed Funds Job Demand (Openings) Job Demand (Existing Jobs)
Job Demand (Total) Available Workers

Source: Federal Reserve, Bureau of Economic Analysis, Bureau of Labor Statistics and Bloomberg, as of 8/31/2022 [Fed Funds Rate, Jobs Demand (Existing Jobs) and Available Workers, as of 9/30/2022].
"PCE deflator" represents the personal consumption expenditures price index. “Job Demand (Openings)” represents total job openings. “Job Demand (Existing Jobs)” represents the US employment to
population ratio. “Available workers” represents the labor force participation rate.

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IMPACTS OF QUANTITATIVE TIGHTENING HAVEN’T EVEN BEEN FELT YET

Fed to shrink its balance sheet by ~$3T by 2025, but it

remains larger than the Fed’s targets would suggest
Federal Reserve Balance Sheet Level and Runoff Projections
(US$ in trillions)

$9 $9.0
Balance sheet remains nearly
$150 billion larger than the
$8 Fed’s runoff targets

$8.5
$7

$6 $8.0

$5
$7.5
$4

$3 $7.0
2019 2020 2021 2022 2023 2024 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23

Balance Sheet Level (Actual) Runoff Projections Balance Sheet Level (Actual) Runoff Projections

Source: Federal Reserve and Bloomberg, as of 9/30/2022. Per the Fed’s latest guidance, “Runoff Projections” assumes $45 billion reduction per month in combined Treasury and agency debt / agency MBS
from June 2022 through August 2022, before the reduction size increases to $95 billion per month from September 2022 onward.

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V. Assessing Today’s
Turbulent Markets

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INVESTOR SENTIMENT

Market sentiment currently at pessimistic extreme

S&P 500 Composite Index S&P 500 Index Performance(1)
5,000 Full History: 12/01/1995 – 09/30/2022
NDR Crowd Sentiment Poll is: % Gain / p.a. % of Time
Above 66.0 -0.4 28
57.0 – 66.0 from Above 2.0 18
4,000 57.0 – 66.0 from Below 20.1 18
Below 57.0 9.5 36
Buy / Hold = 7.1% Gain / p.a.

3,000 Historical average value of Crowd Sentiment

Poll at:(2)
 Optimistic extremes (down arrows) = 68.8
2,000  Pessimistic extremes (up arrows) = 46.8
Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22  Average spread between extremes = 22.1

NDR Crowd Sentiment Poll

80 74.9 73.6
72.1
Extremes generated when sentiment reading:(3)
 Rises above 61.5 = Extreme Optimism
 Declines below 55.5 = Extreme Pessimism
55

40.8
37.9
30
Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22

Source: Ned Davis Research, as of 9/30/2022.

(1) Totals may sum to >100 due to rounding.
(2) Arrows represent extremes in optimism and pessimism. They do not represent buy and sell signals and can only be known for certain (and added to the chart) in hindsight.
(3) Sentiment must reverse by 10 percentage points to signal an extreme, in addition to reaching the above extreme levels.
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EARNINGS ESTIMATES ARE STILL TOO HIGH

Earnings estimates flattened but remain at record highs

While inflation can keep nominal revenue and earnings higher, it will be important to watch margins

S&P 500 NTM EPS Estimates S&P 500 Operating Margins

(YoY change, in basis points)

$230 300

$210 200

$190 100

$170 0

$150 (100)

$130 (200)

$110 (300)
2020 2021 2022 1987 1992 1997 2002 2007 2012 2017 2022

Source: Strategas Research Partners, Refinitiv and Bloomberg, as of 9/30/2022.

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DIVIDEND DISCOUNT MODEL

Dividend discount model shows implied S&P 500 price

levels at various levels of earnings and risk-free rates
S&P 500 Dividend Discount Model
10-Year Treasury Yield
3.00% 3.15% 3.30% 3.45% 3.60% 3.75% 3.90% 4.05% 4.20% 4.35% 4.50%
$190 4,681 4,160 3,744 3,404 3,120 2,880 2,675 2,496 2,340 2,203 2,080
$200 4,927 4,379 3,941 3,583 3,285 3,032 2,815 2,628 2,463 2,319 2,190
$205 5,050 4,489 4,040 3,673 3,367 3,108 2,886 2,693 2,525 2,376 2,244
Trailing Twelve-Month EPS

$210 5,173 4,598 4,139 3,762 3,449 3,184 2,956 2,759 2,587 2,434 2,299
$215 5,296 4,708 4,237 3,852 3,531 3,259 3,027 2,825 2,648 2,492 2,354
$220 5,420 4,817 4,336 3,941 3,613 3,335 3,097 2,890 2,710 2,550 2,409
$225 5,543 4,927 4,434 4,031 3,695 3,411 3,167 2,956 2,771 2,608 2,463
$230 5,666 5,036 4,533 4,121 3,777 3,487 3,238 3,022 2,833 2,666 2,518
$235 5,789 5,146 4,631 4,210 3,859 3,563 3,308 3,088 2,895 2,724 2,573
$240 5,912 5,255 4,730 4,300 3,941 3,638 3,378 3,153 2,956 2,782 2,628
$245 6,035 5,365 4,828 4,389 4,024 3,714 3,449 3,219 3,018 2,840 2,682
$250 6,159 5,474 4,927 4,479 4,106 3,790 3,519 3,285 3,079 2,898 2,737
$255 6,282 5,584 5,025 4,569 4,188 3,866 3,590 3,350 3,141 2,956 2,792
$260 6,405 5,693 5,124 4,658 4,270 3,941 3,660 3,416 3,202 3,014 2,847
$265 6,528 5,803 5,222 4,748 4,352 4,017 3,730 3,482 3,264 3,072 2,901
$270 6,651 5,912 5,321 4,837 4,434 4,093 3,801 3,547 3,326 3,130 2,956

Source: Blackstone Investment Strategy, Bloomberg, BofA and FactSet. Actual earnings data are as of 6/30/2022. Equity risk premium data represent latest available data. Assumes trailing-four-quarter
S&P 500 Earnings Per Share (EPS) of $216 (as of 6/30/2022), and that EPS start the period increasing / decreasing to level indicated in first column, before increasing / decreasing linearly over 2 years to a
4% nominal growth rate and remaining there in perpetuity. Further assumes dividend payout ratio remains constant at the trailing-four-quarter level, and the equity risk premium remains constant. Equity
risk premium is calculated using the forward earnings yield for the S&P 500 and the 10-year Treasury yield.

Blackstone Investment Strategy Blackstone | 28

S&P 500 EARNINGS

S&P prices and multiples have fallen in tandem

Earnings estimates remain near record highs; earnings contract by an average of ~37% in recessions

S&P 500 Earnings Estimates, Price and P/E S&P 500 Earnings during Recessions(1)
(2022 YTD) (peak-to-trough change)

1974– 1981– 1989– 2000– 2007–

1975 1980 1983 1991 2002 2008
5% 0%

0%
-20%
-5%
Average
-40%
-10%

-15%
-60%

-20%
-80%
-25%

-30% -100%
Jan-22 Apr-22 Jul-22 Oct-22

Price P/E Ratio (TTM) NTM Earnings Estimate

Source: Blackstone Investment Strategy, Macrobond, S&P Global, and Bloomberg, as of 10/18/2022.
(1) Represents the peak-to-trough decline in trailing twelve-month after-tax earnings per share.

Blackstone Investment Strategy Blackstone | 29

TRADITIONAL 60/40 PORTFOLIO HAS NOT BEEN A DIVERSIFIER IN 2022

Worst YTD performance on record for 60/40 portfolio

First time on record that both stocks and bonds had negative QoQ returns for three consecutive quarters

Traditional 60/40 Portfolio YTD Total Returns

(in YTD period through 3Q of each respective year)

25%

20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%
1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

Source: Blackstone Investment Strategy and Bloomberg, as of 9/30/2022. Represents the total return of a hypothetical portfolio that is weighted 60% to the S&P 500 Index and 40% to the Bloomberg US
Aggregate Bond Index Unhedged USD.

Blackstone Investment Strategy Blackstone | 30

CHALLENGES FOR THE 60/40 PORTFOLIO NOT A ONE-TIME ABERRATION

Inflation is an ongoing headwind for the 60/40 portfolio

Higher inflation is associated with both lower equity multiples and positive stock-bond correlations

Average S&P 500 Trailing P/E Ratio, Stock-Bond Correlations in

by CPI YoY Tranche(1) Different Inflation Regimes
(1950-2021) (correlation)

18.6x 1.0 Higher Correlation

17.4x
0.8
15.1x 0.6

0.4
11.6x
0.2
9.5x
0.0
8.5x
8.0x
(0.2)

(0.4)

(0.6)

(0.8) Higher Inflation

(1.0)
0-2% 2-4% 4-6% 6-8% 8-10% 10-12% 12-14% 0% 2% 4% 6% 8% 10%
YoY CPI Tranche 5-Year Inflation CAGR
1970 to 1998 Since 1998 Current

Source: Blackstone Investment Strategy, Bureau of Labor Statistics, Ibbotson Associates, Morningstar and Bloomberg, as of 9/30/2022. Stocks and bonds are represented by the S&P 500 Index and the IA
SBBI US Long-Term Government Bond Index, respectively. Correlations are trailing twelve-month, based on monthly returns from 1970 to present.
(1) Note: Data calculated by Strategas Research Partners, from 1950 to 2021.

Blackstone Investment Strategy Blackstone | 31

US CORPORATE HIGH YIELD SPREADS VS. NEW BANKRUPTCIES

US high yield spreads have started to widen out,

but bankruptcies remain at historic lows
US Corporate High-Yield OAS vs. New Bankruptcies

20% 5,000

18% 4,500

16%
4,000
14%
3,500
12%
3,000
10%
2,500
8%
2,000
6%

1,500
4%

2% 1,000

0% 500
2005 2009 2013 2018 2022
Bloomberg US Corporate High Yield Average OAS (LHS) New Bankruptcies (3 months lagged) (RHS)

Source: Administrative office of US Courts and Bloomberg, as of 9/30/2022.

Blackstone Investment Strategy Blackstone | 32

US DEFAULT RATES

Default rates forecasted to rise slightly by year-end and

into 2023, but remain below long-term averages
US High-Yield Bond and Leveraged Loan Default Rates
(par-weighted default rates)

8%

7%

6%

5%
Long-Term Avg. Default Rate:
High-Yield Bonds: 3.2%
4% Leveraged Loans: 3.1%

3%

2%

1%

0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022YTD 2022E 2023E

High-Yield Bond Default Rate Loan Default Rate

Source: JP Morgan. Actual data as of 9/30/2022; data thereafter represent JPM forecasts, as of 10/4/2022.

Blackstone Investment Strategy Blackstone | 33

VI. Longer-Run Trends
To Consider

Blackstone Investment Strategy Blackstone | 34

ENERGY MARKETS

OPEC’s plan to reduce production has led to oil rally,

reversing recent declines from fears of global recession
Total OPEC Crude Oil Production(1) Oil Prices (WTI) vs. US Rig Count(2)
(millions of barrels per day) (US$ / gallon)

31 $120 2,000

30
$100
1,600
29

28 $80
1,200
27
$60
26
800
25 $40

24
400
$20
23

22 $0 0
Jan-19 Nov-19 Sep-20 Jul-21 May-22 Mar-23 2014 2015 2016 2018 2019 2021 2022

Actual Estimates Oil Prices (LHS) Rig Count (RHS)

(1) Source: The Organization of the Petroleum Exporting Countries (OPEC) and Bloomberg, as of 10/31/2022. Estimates assume decline of 2 million barrels per day on average through March 2023, as
announced by OPEC on 10/5/2022.
(2) Source: Baker Hughes Inc. and Bloomberg, as of 9/30/2022. Represents oil drilling and exploration total rig count.

Blackstone Investment Strategy Blackstone | 35

CHECK-IN ON MIDTERM ELECTIONS

Consensus view is for control of the House to switch

parties, while the Senate is more of a toss-up
Market Odds for Balance of Power in Congress after 2022 Midterm Election
(based on PredictIt contracts)

80%

70%

60%

50%

40%

30%

20%

10%

0%
Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22

D House & Senate D House, R Senate R House & Senate R House, D Senate

Source: PredictIt and Macrobond, as of 10/19/2022.

Blackstone Investment Strategy Blackstone | 36

MORE PEOPLE MAY OPT TO RENT, AND FOR LONGER

As US home affordability continues to worsen, owning a

home is increasingly expensive relative to renting
NAR Housing Affordability Index(1) Average Spread Between the Monthly Cost
(>100 = more affordable) To Own a Home vs. Monthly Cost to Rent(2)
(higher = owning is relatively more expensive)
220 $1,000
$905
200
$800
180

160
$600

140

$400
120

100
$200
80

60 $0
1981 1987 1994 2001 2008 2015 2022 2000 2003 2006 2009 2012 2016 2019 2022

(1) Source: NAR and Macrobond, as of 8/31/2022.

(2) Source: Zillow and Axiometrics, as of 9/30/2022. In-place net effective rents and the 30-year fixed rate mortgage data as of 10/13/2022. Data reflect US national averages. Monthly mortgage
payments assume median home prices are financed at 80% loan-to-value and include closing costs, insurance, taxes and monthly capital expenditure.

Blackstone Investment Strategy Blackstone | 37

ALTERNATIVE ASSET CLASSES AS A POTENTIAL SOLUTION FOR DIVERSIFICATION

Private market strategies and the “illiquidity premium”

Alternative assets have historically provided attractive risk-adjusted returns vs. public market equivalents

Historical Risk and Return of Select Asset Classes (2017–2021)

(annualized return)

25%
Private
Equity

20%
Large-Cap
Equities

15%

Public
REITs
10%
Private Private
Credit Real Estate High Yield
Bonds Commodities
5%
Investment
Grade Bonds

0%
0% 5% 10% 15% 20% 25%

Standard Deviation (Annualized)

Morningstar as of 12/31/2021. The returns and volatility of the asset classes presented are based on the following indices: Private Equity: Cambridge Assoc. US Private Equity Index, Hedge Funds: HFRI
Fund Weighted Composite Index, Commodities: DJ Commodity Index, Investment Grade Bonds: Bloomberg US Aggregate Bond Index, Private Real Estate: NCREIF ODCE Index, High Yield: Bloomberg US
Corporate High Yield Bond Index, Large Cap Equities: S&P 500 Index, Public REITs: MSCI US REIT Index.

Blackstone Investment Strategy Blackstone | 38

DISCLAIMERS

The views expressed in this commentary are the personal views of Joseph Zidle, Senior Managing Director, and Byron Wien, Vice Chairman, in the Private
Wealth Solutions Group and do not necessarily reflect the views of Blackstone Inc. (together with its affiliates, "Blackstone"). The foregoing information has
not been provided in a fiduciary capacity under ERISA, and it is not intended to be, and should not be considered as, impartial investment advice. The views
expressed reflect the current views of Mr. Zidle and Mr. Wien as of the date hereof and neither Mr. Zidle, Mr. Wien nor Blackstone undertakes to advise you of
any changes in the views expressed herein.

No representation or warranty is made concerning the accuracy of any data compiled herein. The views expressed herein may change at any time subsequent
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These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment
advice or an offer to sell or a solicitation of an offer to purchase (or any marketing in connection thereof) any interest in any investment vehicles managed by
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Blackstone and others associated with it may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this
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Investment concepts mentioned in this commentary may be unsuitable for investors depending on their specific investment objectives and financial position.
Where a referenced investment is denominated in a currency other than the investor’s currency, changes in rates of exchange may have an adverse effect on
the value or price of or income derived from the investment.

Tax considerations, margin requirements, commissions and other transaction costs may significantly affect the economic consequences of any transaction
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an offer to sell any security or the solicitation of an offer to purchase any security.

Blackstone Investment Strategy Blackstone | 39

DISCLAIMERS (CONT’D)

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Blackstone Investment Strategy Blackstone | 40