Blackstone says real estate fund exits continue as profits dwindle

Blackstone faces ongoing redemption demands from its $69 billion real estate investment fund, which it restricted from exiting late last year as investors rushed to withdraw cash from the world’s largest alternative asset manager.

Blackstone President Jonathan Gray said in an interview with the Financial Times that it was “a bit premature” to say redemption demands were slowing in a fund called Blackstone Real Estate Income Trust (Bright). Told.

“We have a November and December backlog,” says Gray. “I can say that the tone of our conversations with our advisors has greatly improved.”

December, Blackstone Limited investor withdrawals out of the fund as investors became concerned about the long-term health of the real estate market.

Bright is designed to give wealthy investors exposure to the New York-based group’s vast portfolio of commercial properties, including warehouses, apartments and office towers.

The fund has amassed tens of billions of dollars in assets in recent years, fueling fee and asset growth within Blackstone.

However, the rapid and ongoing redemption demands that began last summer have highlighted the risks of providing liquidity to illiquid assets and could change the way Blackstone builds such funds. There is a nature.

“I think there will be an evolution of private wealth products,” Gray said. “The product is working as designed, but are there any tweaks to make it better? Sure.” Gray said the new fund does not allow monthly redemptions.

Fourth-quarter results released on Thursday showed: black stone Poor performance in Breit and worsening economic conditions hit fee-based revenue, recording a significant profit decline.

Blackstone’s fee-related revenue (on behalf of management fees the company earns) plummeted 42% to $1.1 billion. Distributable earnings, analysts’ favorite proxy for overall cash flow, similarly fell to $1.3 billion. Earnings per share beat or beat the expectations of analysts surveyed by Bloomberg.

The decline in fee-based revenue was due to a sharp decline in incentive fees (the profit Blackstone earns after achieving a certain level of profit for its investors).

Blackstone cut Bright by about 1.5% during the quarter. This meant that the fund was unable to earn significant incentive fees. “No one was immune to the higher cost of capital and higher cap rates, but we had really strong cash flow growth,” Gray said of Blackstone’s real estate portfolio.

Beginning in 2022, Blackstone will begin tracking incentive fees earned by Breit on a quarterly basis instead of a yearly basis.

If this policy had been implemented in 2021, Blackstone’s fee-related revenue would have declined by 19% due to the lack of incentive fees.

Blackstone’s shares initially fell sharply when Bright restricted its exits, but most of the losses were offset by a broader market rebound and a $4 billion investment in the fund by the University of California earlier this month. Got it back. On Wednesday, the university invested another $500 million in Breit.

Institutional investors such as UC continued to pour money into Blackstone, raising more than $43 billion in the quarter, pushing total assets under management to a record $975 billion.

Despite Bright’s troubles, Gray said he was optimistic about the long-term opportunity to attract new assets from wealthy investors.

He said only 1% of the $85 trillion in investable assets is in alternative assets, but that will increase over time.

“In 2008 and 2009, people were saying institutional investors wouldn’t invest in alternatives anymore. Clearly, that was never proven,” said Gray. Blackstone says real estate fund exits continue as profits dwindle

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