Blackstone restricts sale of Breit fund

In a statement, investment firm Blackstone has blocked withdrawals that exceed a certain threshold for its $125 billion Breit fund.

The last few days have brought with them a new tailspin of contagion from the failure of that colossal scam called FTX. 

BlockFi, another of the more rooted exchanges, spiralled into bankruptcy in the very wake of the Sam Bankman-Fried episode. 

But it turns out it’s not just exchanges that are weeping; in a breaking news tweet, Whale Chart points out that Blackstone is also having problems. 

“Breaking news: Blackstone has limited investor withdrawals from its $125 billion real estate investment fund after a spate of buyout calls from investors pulling money from private assets.”

The investment company is in the midst of liquidity problems, yet this time, when compared to the exchange incident, there are some big differences. 

Blackstone limits investor withdrawals

Blackstone is a private equity group that is subject to contracts and obligations to investors quite different from those of exchange platforms. 

Among other things, investors can only redeem 5% of the capital invested in the holdings in which they have participated, and this is possible once every quarter. 

This rule greatly limits the client’s ability to exit the investment but at the same time makes the investment very solid, which unlike exchange platforms enjoys this protection.

The investment company, explains that in November it managed to satisfy only 43% of redemption requests for its Breit fund (Blackstone Real Estate Income Trust).

In response to the news, Blackstone’s stock on the New York Stock Exchange reacted badly, closing at 85.04 US dollars (-7%).

The danger of insolvency is avoidable for a fund both because of the inherent protection of the contract that clients and companies sign up for but also because of the 69 billion in net assets for which the company stands strong.

The company’s equity already takes debt into account and consists of logistics facilities, condominiums, casinos, and medical office parks, all of which are attractive assets that can be monetized in the short term following a sale. 

Upon reaching the 5% threshold mentioned above, Blackstone may decide to freeze cash outflows so as to avoid selling off the real estate holdings that make it so solid.

Something odd has caught the attention of analysts, with the vast majority of capital flight coming from Asia. 

Structure of the Breit fund

The Breit fund is only 20% invested by foreign clients, and the fact that 70% of these are all from the Global East has intrigued analysts.

Capital flight in the past month deprived Breit of nearly $2 billion ($1.8 to be precise) representing 2.7% of net assets but the story does not end there. 

In the month of November, which has just ended, the US company was saddled with a volume of withdrawal requests well above 5% and thus decided to temporarily stop withdrawals as allowed by contract. 

Capital flight for the month of November stopped at $1.3 billion but this forced the company to take immediate corrective action. 

As of yesterday, Blackstone proceeded to sell some of its real estate assets in order to be more solid and cope with the cash outflow in recent months. 

The investment firm sold 49.9% of its stake in a number of casinos in Las Vegas, among them include MGM Grand Las Vegas and IL Mandalay Bay Resort. 

The transaction tallies 1.27 billion US dollars in cash but billions more can be accumulated in case of extreme need for the fund. 

For the last month of the year, until the dust settles and everything is cleared, Blackstone will allow its clients to withdraw only 0.3% of total net assets. 

The Blackstone Real Estate Income Trust for now has been saved but attacks do not seem to have been stopped especially those from the east.

This incident that the fund has stumbled into has nothing to do with the fuss raised by the FTX affair that also brought with it other victims. 

Of them all, BlockFi and Genesis, to name just two, had to raise the white flag due to the contagion of capital flight and could not avoid bankruptcy and solvency problems.