By Chibuike Oguh
(Reuters) -Blackstone Inc on Tuesday said it had secured a $4 billion investment from the University of California in its unlisted real estate income trust (BREIT) that has been plagued by investor redemptions, after the private equity firm committed $1 billion to backstop the university's returns in the fund.
In an unprecedented move, Blackstone (NYSE:BX) exercised its right in November to limit redemptions in the $69 billion BREIT after it received investor requests for redemptions exceeding 5% of the fund's net asset value. It blamed investors in Asia facing a cash crunch because of the market turmoil for the move.
While the BREIT's returns have remained robust -- it gained 8.4% net of fees in 2022 versus a 26% decline to the publicly traded Dow Jones U.S. Select REIT Total Return Index -- Blackstone has been seeking to convince investors that such outperformance will continue given a rise in interest rates that is weighing on large swathes of the real estate sector.
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 $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% annualized 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 that redemption demand from investors in the REIT totaled about $3.8 billion in December, up from about $3 billion in November when it raised the gates. Blackstone decided to allow investors to redeem $151 million in December, meeting just 4% of the demand to cash out.
Blackstone said it will receive 5% of all profit generated above the 11.25% threshold return guaranteed to UC Investments.
UC Investments will also pay to Blackstone the normal fees charged to all BREIT investors: 12.5% of profits and 1.25% of total investment as management fees.
Blackstone's shares were up 1.42% in afternoon trading on Tuesday. The stock has lost 43% 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' asset management franchise, contributing more than 17% to the firm's earnings.
UC Investments has about $152 billion in assets under management.