One of the largest endowments in the United States is to invest $4 billion in Blackstone’s flagship private real estate investment trust, in a bid to boost confidence in a $69 billion fund that has limited withdrawals from investors last year after suffering heavy redemptions.
the University of CaliforniaBlackstone’s endowment, which manages more than $150 billion in assets, said on Tuesday it would invest in the Blackstone Real Estate Income Trust, or Breit, at its current net asset value. This means he is taking a large position at the same value as the fund’s more than 200,000 existing investors.
However, black stone promised a minimum annual return of 11.25% for six years and provides a $1 billion backstop if the fund fails to meet that target. In exchange, the endowment agreed to lock its capital in the fund until 2028, while paying a higher overall fee if the vehicle performs well. Other investors do not benefit from the same system.
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 it exceeded 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 down sharply. Breit has grown rapidly in recent years and accounts for a fifth of the group’s paid earnings, analysts said.
Blackstone shares rose nearly 2% at midday in New York after the announcement. The company’s stock price has fallen more than 40% 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 to offer to make a large direct investment in the fund. On December 8, Singh spoke with Blackstone Chairman Jonathan Gray to propose the investment.
“We consider Breit to be one of the best-positioned large-scale real estate portfolios in the United States, managed by one of the top real estate investors in the world,” Singh said. “This is an opportunity that only comes with a strong and trusted partnership.”
While the university will buy common shares of Breit, it will then transfer the investment into a strategic company it has created alongside Blackstone.
His $4 billion investment will be combined with $1 billion of stock Blackstone already owns in Breit and will be moved into a separate fund that carries a performance fee above a hurdle rate of 11.25%.
Blackstone would receive a 5% cash performance payout on any returns above that minimum rate, the group said in a statement.
These fees would be in addition to Breit’s costs for all investors, including the University of California. Investors pay a performance fee of 12.5% to Blackstone in addition to an annual threshold of 5%.
If the fund performs poorly and does not achieve an annual return of 11.25%, Blackstone will reimburse the fees to the university until it receives its guaranteed return. If the fund were to lose value or generate minimal returns, the private equity group stands to lose the $1 billion worth of shares, two people briefed on the deal said.
Blackstone said the investment was beneficial to the company and its shareholders. He said he would make money on the investment if Breit earned an annualized return of at least 8.7% over the next six years.
The university has agreed to hold its investment in Breit for at least six years and then will have the option to redeem its interest over a two-year period starting in 2028. This contrasts with the monthly liquidity Blackstone offers other investors in the fund. , which can redeem up to 2% of the fund’s total assets per month, or 5% per quarter.
The university’s investment comes as other investors continue to buy out of the fund.
In December, US investors sought to redeem 3% of their overall assets in the fund and 5% of all investors requested redemptions, according to people familiar with the matter.
However, due to the withdrawal restriction imposed by Blackstone, only 0.43% of Breit’s net assets were redeemed in December.
In a communication sent to Breit investors, Blackstone called the new investment a “win” for existing shareholders as it would increase the fund’s “balance sheet flexibility” and add capital during what “we believe is an opportune deployment period. “.
The company also said the investment is expected to bolster fees paid to the group and its ordinary shareholders.
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