One of the largest US endowment funds is making a $4 billion investment in Blackstone’s top private real estate investment trust, in a move aimed at bolstering confidence in a $69 billion fund. which imposed limits on investor withdrawals last year after suffering heavy redemptions.
The University of CaliforniaThe Blackstone endowment, which manages more than $150 billion in assets, said Tuesday it would make the investment in the Blackstone Real Estate Income Trust, or Breit, at its current net asset value. That means you’re taking a big position at the same valuation as the fund’s 200,000+ existing investors.
However, black stone has promised a minimum annual return of 11.25% for six years and provides $1 billion in support if the fund fails to achieve that goal. In exchange, the endowment agreed to lock up its capital in the fund until 2028, while paying higher overall fees if the vehicle performs well. Other investors do not benefit from the same deal.
The investment was a “validation” of Breit’s investment portfolio and performance, the Blackstone chief executive said. Stephen Schwarzman.
In November, Blackstone limited investor withdrawals de Breit after missing monthly and quarterly redemption limits, an announcement that cast doubt on the fund’s future expansion and sent shares of the New York-based private equity group plunging sharply. Breit has grown rapidly in recent years and accounts for a fifth of the group’s fee-based earnings, according to analysts.
Blackstone shares rose nearly 2 percent at midday in New York after the announcement. The company’s share price has plunged more than 40 percent in the past 12 months.
After the restriction was put in place last year, Jagdeep Singh Baccher, chief investment officer at the University of California, approached Blackstone about making a large direct investment in the fund. On December 8, Singh spoke to Blackstone Chairman Jonathan Gray to propose the investment.
“We view Breit as one of the best-positioned large-scale real estate portfolios in the US, managed by one of the world’s leading real estate investors,” Singh said. “This is an opportunity that only comes through a strong and trusted partnership.”
While the university will buy common shares in Breit, it will then move the investment into a strategic company it has created together with Blackstone.
His $4 billion investment will be combined with $1 billion of shares Blackstone already owns in Breit and will be moved into a separate fund that carries a higher performance fee at a critical rate of 11.25%.
Blackstone would receive a 5 percent cash return payment on any return in excess of that critical rate, the group said in a statement.
Those fees would be above Breit’s costs for all investors, including the University of California. Investors pay a 12.5% performance fee to Blackstone on top of 5% per annum.
If the fund underperforms and fails to achieve an 11.25 percent annual return, Blackstone will return the fees to the university until it receives its guaranteed return. If the fund’s value falls or it posts minimal returns, the private equity group risks losing the $1 billion worth of shares, two people briefed on the deal said.
Blackstone said the investment was advantageous for the company and its shareholders. He said he would make money on the investment if Breit returned an annualized return of at least 8.7 percent over the next six years.
The university has agreed to hold its investment in Breit for a minimum of six years and will then have the ability to redeem its interest over a two-year period beginning in 2028. This is in contrast to the monthly liquidity Blackstone offers to the fund’s other investors, that you can redeem up to 2 percent of the fund’s total assets per month, or 5 percent per quarter.
The university’s investment occurs as other investors continue to redeem the fund.
In December, US investors sought to redeem 3 percent of their total assets in the fund and 5 percent of all investors sought redemptions, according to people familiar with the matter.
However, due to Blackstone’s withdrawal restriction, only 0.43 percent of Breit’s net assets were redeemed in December.
In a statement sent to Breit investors, Blackstone called the new investment a “win” for existing shareholders because it would increase the fund’s “balance sheet flexibility” and add capital during what “we believe is a timely implementation period.” .
The company also said the investment should bolster fees paid to the group and its common shareholders.