As blog readers will know, we have in the past questioned the investment of $4.5 billion in pension and endowment funds in the Blackstone Real Estate Investment Trust (BREIT) in late 2022. BREIT at the time was - and still is - the subject of a slow-motion run on the bank, cushioned by the fact that BREIT does not have to give investors all their money back when demanded. Instead, it determines what fraction of the demand it will satisfy. BREIT has continued to experience the run through October.
CIO Bachhar invested $4.5 billion in BREIT, a kind of liquidity bailout, last year in exchange for a "guaranteed" return of 11.25%. There were protests about the investment at subsequent Regents meetings, but these centered on landlord-tenant relations in buildings owned by BREIT. Only Regent Hernandez raised the issue of the financial risk entailed. During the November 16th meeting of the Investments Committee, he again asked Bachhar about the BREIT investment.
Bachhar essentially said that he had gotten 11.25% "guaranteed." He did not say anything about the implicit risk. Note that to get 11.25%, there has to be significant risk, since that return is well above what riskless interest rates (say, in Treasury securities) would provide. In the view of yours truly, the issue of risk (which may have legal aspects since other investors in BREIT in effect are cross-subsidizing the 11.25%), is what needs to be looked at. It may well turn out that, after the fact, the investment turns out to have been a good deal, but that doesn't make it a prudent deal.
In any event, you can see Regent Hernandez's latest question and CIO Bacchar's response at the link below:
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