Blackstone offers backstop to lure University of California in redemption-stricken Reit

BLACKSTONE has announced that it has secured a US$4 billion investment from the University of California in its unlisted real estate income trust (Breit), which has been plagued by investor redemptions, following the private equity firm’s committing of US$1 billion to backstop the university’s returns in the fund.

In an unprecedented move, Blackstone exercised its right in November to limit redemptions in the US$69 billion Breit after it received investor requests for redemptions exceeding 5 per cent of the fund’s net asset value. It blamed investors in Asia facing a cash crunch because of the market turmoil for the move.

UC Investments, the University of California’s investment arm, agreed to hold its investment in Breit for at least six years. In exchange, Blackstone will offer US$1 billion of its own investment in Breit as collateral, allowing for that money to go to UC Investments to make up for any shortfall if the university does not achieve a minimum 11.25 per cent annualised net return through January 2028.

The agreement represents a show of confidence in Breit at a time when more capital in the fund wants out. Blackstone disclosed on Tuesday (Jan 3) that redemption demand from investors in the Reit totalled about US$3.8 billion in December, up from about US$3 billion in November when it raised the gates.

Blackstone moved to allow investors to redeem US$151 million in December, meeting just 4 per cent of the demand to cash out.

Blackstone said it will receive 5 per cent of all profit generated above the 11.25 per cent threshold return guaranteed to UC Investments.

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UC Investments will also pay to Blackstone the normal fees charged to all Breit investors: 12.5 per cent of profits and 1.25 per cent of total investment as management fees.

Blackstone’s stock has lost 43 per cent of its value over the past 12 months.

Breit, which is marketed to high-net-worth investors rather than institutional clients like pension funds and insurance firms, has become a key part of Blackstone’s asset management franchise, contributing more than 17 per cent to the firm’s earnings.

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UC Investments has about US$152 billion in assets under management. REUTERS