The Intricate Dance between Public and Private Markets: A Blackstone Case Study

Some Interplay between the public and private markets

Investors have been pulling their funds from Blackstone Real Estate Income Trust, or BREIT at an alarming rate.

The clientele of the private trust are wealthy individuals, most of them holding leveraged positions in their portfolios. Given the fall in property prices and the negative stock market returns, investors are getting hit with margin calls.

BREIT’s success makes it vulnerable to investor redemptions. The trust delivered 9.3% total return this year, while US listed real estate trusts have declined ~20%.

Since the fund repurchases redemption requests at their most recent quarter’s net asset value, it became a rare asset investor looking to raise cash could sell at annual highs.

US investors began submitting requests to trim parts of their holdings, realising their gains and offsetting taxes with losses on other assets. Blackstone was forced to limit withdrawals, and at the hint of trouble investor demand to pull their money from the fund may intensify.

This case shows the public and private markets don’t move in tandem. Even a good fund in a bad market needs to have strong liquidity buffers to stabilise itself. And a bad fund in a good market can generate above market returns. (Softbank😊)