The Run on the Bank at Blackstone Continues

As blog readers will know, UC invested $4.5 billion in Blackstone's real estate investment trust in exchange for a "guaranteed" 11.25% return. The idea seemed to be that if UC showed confidence in the trust, other investors would be calmed and the run on the bank would halt. But that seems not to have happened. From Bloomberg:

Blackstone Inc.’s $69 billion real estate trust hit a monthly redemption limit in January, as the firm’s crown jewel continues to wrestle with a line of investors seeking to get money out. Blackstone Real Estate Income Trust told investors Wednesday that it fulfilled repurchase requests for 2% of its net asset value. That accounted for about 25% of what investors wanted to pull out, according to a letter. January repurchase requests were north of $5 billion, according to Bloomberg calculations.

Blackstone President Jon Gray had previously cautioned that a chunk of redemptions in January involved unfulfilled requests from November and December. January requests were “in line with the aggregate unfulfilled amount for November and December,” Blackstone said in a statement Wednesday. “We expect it will take some time to work through this backlog and that flows will normalize over time as BREIT continues to deliver for investors.” ...

Full story at https://www.bloomberg.com/news/articles/2023-02-01/blackstone-s-breit-hit-monthly-redemption-limit-in-january.

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There are also reports of a management reshuffle at Blackstone in response to the financial turmoil:

https://finance.yahoo.com/news/blackstone-shakes-leadership-key-real-124500444.html.

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At the most recent meeting of the Regents' Investments Committee - as blog readers will know - all the questions focused on the trust's landlord-tenant relations. Nobody asked about the risks involved - risks that are actually demonstrated by the large 11.25% return. Of course, it is quite possible that all will go well and UC will benefit. But that is not the test that fiduciaries - which the Regents are - should be using. They should be asking about risk-return trade-offs and not waiting to see if all turns out to go well. If the trust overall earns less than 11.25%, in one way or another, the payout to UC has to come at the expense of the other investors. Is there a legal risk entailed? No one asked about that. Was anyone even there from the general counsel's office who might have been asked?

From the Internal Revenue Service: [excerpt]

Fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. A fiduciary’s responsibilities include:

• acting solely in the interest of the participants and their beneficiaries;
• acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
• carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters;
• following the plan documents; and
• diversifying plan investments.

The responsibility to be prudent covers a wide range of functions needed to operate a plan. Since you must carry out these functions in the same manner as a prudent person, it may be in your best interest to consult experts in such fields as investments and accounting.

Source: https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities.