Blackstone leverages market position after limiting redemptions

Almost two months ago, New York-headquartered Blackstone caused the wider financial market to take notice when its non-listed real estate investment trust, BREIT, hit its 5 percent quarterly limit on repurchase requests and began limiting redemptions. Peers Starwood and, more recently, KKR have had to do the same thing as the market reacted.

Unlike its peers, however, Blackstone leveraged its position in the market to snag a $4 billion commitment from UC Investments, the $152 billion endowment of the University of California. That commitment has helped the firm weather the storm more quickly, with president and chief operating officer Jon Gray calling the initial commitment plus the extra $500 million UC added on a “real affirmation”.

“We endured a number of months of really negative press,” Gray said on Blackstone’s Q4 and year-end 2022 earnings call. “Rebuilding momentum takes time. The good news is, if you talk with our distribution partners, financial advisers [and] underlying customers, the tone of those conversations has improved.”

The commitment from UC was a key contributor, affirming the quality of the portfolio, Gray said. That confirmation of the quality and valuation was important for outside investors, particularly the private wealth investors and the financial advisers recommending the product to them, he added.

Blackstone confirmed that other investors had reached out to explore the idea of a similar commitment. However, Gray said the firm is restricted on doing such deals often because of limits on the number of shares the firm can own and issue.

$4bn

Commitment from UC Investments

7%

Redemption requests in Blackstone Property Partners

$28.6bn

Raised for Blackstone Real Estate Partners X

Blackstone also believes the tide is turning because of what’s happening in BCRED, the firm’s non-listed credit vehicle. The firm had to limit redemptions on that vehicle too but is seeing the velocity of that already reduce. Redemption requests in January were mostly from investors that submitted them in November and December, Gray said.

“Some investors… are making larger requests than they actually want to achieve, because they expect to be cut back,” Gray acknowledged. “We expect… we will see an uplift in redemptions. But then, we think over time, we’ll be able to work down this backlog.”

A similar story is unfolding in Blackstone Property Partners, the manager’s institutional open-end platform. Redemption requests now represent around 7 percent of the fund, which had $73 billion of assets under management at the end of 2022.

Liquidity is different in that platform than BREIT and BCRED, Gray said, since redemption requests are filled from new inflows. Institutional investors have different expectations from the private wealth channel and are comfortable being patient, he added.

“We haven’t really heard much from our clients in the institutional world around BPP, vis-à-vis BREIT and the Cal Regents investment,” Gray said. “I think there’s a different dynamic, given the different liquidity profile in BPP.”

Fundraising update

Despite redemptions and their reactions dominating discussions, Blackstone is expecting or has already garnered inflows into other areas of its business.

While it had originally planned to close its signature fund last year, Blackstone continued to bring in capital for its $30 billion Blackstone Real Estate Partners X. The fund, which is already the largest closed-end real estate vehicle ever, saw another $2.3 billion of commitments, bringing the total Blackstone has raised so far to $28.6 billion.

The firm also raised $1.4 billion in the first close of its fifth real estate debt fund, Blackstone Real Estate Debt Strategies V. The firm is targeting around $8 billion for that capital raise, Gray said, in line with what its predecessor closed on in 2020.

The firm also plans to launch the latest offering in its European-focused closed-end series of real estate funds, BREP Europe. The seventh fundraise in that series will kick off before the end of Q1 2023, Gray said. The firm will again target a similar amount to the €9.5 billion predecessor fund.