Blackstone’s net income fell during the fourth quarter, and the investing giant’s assets under management came in shy of the $1tn target it expected to reach in 2022 as fundraising weakened in some of its strategies aimed at individual investors.
The New York investment firm reported net income of $557.9m, or 75 cents a share, compared with a profit of $1.4bn, or $1.92 a share, during the same period a year earlier.
A drop in the value of Blackstone’s real estate investments contributed to the profit decline. Valuations fell by 2% and 1.5% from the previous quarter for its two main strategies.
Blackstone’s assets under management rose to $974.7bn, up from $950.9bn in the prior quarter and $880.9bn a year earlier. The firm raised $43.1bn in the quarter and $226bn for the full year.
That wasn’t enough to push Blackstone past its goal set in 2018 of reaching $1tn in assets by 2026, which it had since said it expected to reach in 2022.
Breit, Blackstone’s nontraded real-estate investment trust aimed at individual investors, posted a return of 8.4% in 2022. Yet the vehicle experienced an uptick in requests from investors to sell shares in the fourth quarter. That caused Blackstone to limit redemptions and led to a big drop in its stock. The shares have since recovered much of that ground.
READ Why Blackstone’s BREIT is a cautionary tale for private funds
Breit and Blackstone’s nontraded business-development company, Bcred, have been big drivers of its asset and fee growth in recent quarters as the portfolios of institutions such as pension funds and sovereign wealth funds become saturated with private assets.
On 3 January, Breit struck a deal with UC Investments, the entity that manages the endowment for the University of California system. Under the agreement, UC Investments said it would put $4bn into Breit and hold the shares for six years. Blackstone is contributing $1bn of its own Breit shares to the venture, effectively backstopping UC’s returns until its commitment is exhausted.
On 25 January, UC Investments said it was committing another $500m to Breit under the same terms.
“We’re north of $14bn of liquidity, and that makes us feel pretty good, not only to help meet investor requests but also for potential deployment,” Blackstone president Jonathan Gray told The Wall Street Journal.
Blackstone reported comparable cash flows were up 13% across Breit’s portfolio in 2022, and Gray said the tone of Blackstone’s conversations with financial advisers had improved in recent weeks.
The firm said the value of its corporate private equity portfolio climbed by 3.8% in the quarter. That compares with a gain of more than 7% for the S&P 500.
Blackstone’s private credit portfolio, which is nearly all floating-rate debt, appreciated by 2.4% in the quarter as interest rates rose. Blackstone’s hedge-fund investments climbed by 2.1%.
Distributable earnings, or cash that could be handed back to shareholders, came in at $1.3bn, or $1.07 a share, compared with $2.3bn, or $1.71 a share, a year earlier, as the firm sold off fewer assets.
Earlier this month, Blackstone said it finished raising a $25bn fund dedicated to secondaries, a type of transaction in which the fund buys interests in other private equity funds from existing investors.
Perpetual capital assets under management climbed by 18% to $371bn.
Blackstone in October struck a deal to buy a majority stake in the climate technologies business of Emerson Electric in a deal that valued the unit at $14bn.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
This article was published by The Wall Street Journal, a fellow Dow Jones Group brand
Banks should be on alert for Russian oligarchs attempting to circumvent U.S. sanctions by investing in commercial real estate, a U.S. Treasury Department watchdog said.
Wealthy Russians with ties to the Kremlin are likely attempting to evade the economic sanctions placed on them in the U.S. by moving money into the commercial-real-estate sector, where complex financing methods and opaque ownership structures can help bad actors hide funds, the Treasury’s Financial Crimes Enforcement Network, better known as FinCEN, said Wednesday.
FinCEN, which serves dual roles as the U.S.’s financial intelligence unit and anti-money-laundering regulator, is the recipient of the suspicious activity reports that financial institutions are required to file if they suspect a transaction may be illicit in nature. Law-enforcement officials can consult the reports when conducting investigations into financial crimes.
The Biden administration has targeted wealthy Russians as part of its response to President
invasion of Ukraine last year, placing those with close ties to the Russian government on blacklists that are intended to prevent them from accessing the U.S. financial system.
The alert issued by FinCEN on Wednesday is the Treasury’s latest effort to prevent sanctioned Russians from finding ways to evade such financial restrictions. In an 11-page report, FinCEN listed a number of potential red flags and typologies it said banks should be on the lookout for.
“Thanks to international pressure and the economic restrictions that more than 30 countries have imposed on Russia for its brutal war against Ukraine, sanctioned Russian elites are increasingly left with fewer options for moving and hiding their ill-gotten wealth,” FinCEN Acting Director
Himamauli Das
said.
Sanctioned individuals may try to use pooled investment vehicles or offshore funds to avoid due-diligence processes, FinCEN said in its alert. Banks aren’t typically required to verify the identities of individuals who own less than 25% of a fund. Sanctioned individuals could keep lowering their stakes to avoid detection, while still maintaining control of the fund, FinCEN said.
Oligarchs also may use shell companies and multiple layers of legal entities or trusts, or transfer their assets to a family member or business associate to conceal their ownership, the Treasury bureau added.
Sanctioned individuals aren’t just investing in high-end or luxury properties, according to the alert. In some cases, they may seek out more inconspicuous investments that provide stable returns without drawing unwanted attention. Such sanction evasion strategies are just as likely to occur in small to midsize U.S. cities as they are in the largest metropolitan areas, FinCEN said.
FinCEN’s latest alert builds on a similar warning issued last year, in which the watchdog advised banks to pay close attention to transactions involving high-value assets such as artwork, luxury yachts and jewelry.
Federal prosecutors have warned that lawyers, consultants and other service providers who work for sanctioned individuals could run afoul of the law.
An indictment unsealed earlier this week charged a former high-level FBI agent and a former Russian diplomat with sanctions violations in connection with work they did for
Oleg Deripaska,
a raw-materials magnate who was placed on a sanctions blacklist in 2018.
Write to Dylan Tokar at dylan.tokar@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Last Updated: Jan. 21, 2023 at 2:48 p.m. ET
First Published: Jan. 20, 2023 at 9:24 a.m. ET
Even as mortgage rates come off of recent highs, buyer demand remains constrained. And that’s affecting listing and asking-price decisions among sellers, according to a new report.
The report by Redfin RDFN, which tracked home-sale prices for the four weeks ending Jan. 15, found that the median price of a house sold in the U.S. was up 0.9%…
Even as mortgage rates come off of recent highs, buyer demand remains constrained. And that’s affecting listing and asking-price decisions among sellers, according to a new report.
The report by Redfin
RDFN
,
which tracked home-sale prices for the four weeks ending Jan. 15, found that the median price of a house sold in the U.S. was up 0.9% from a year ago, at $350,250.
While home prices on a national level hold steady, property markets in some parts of the country are showing weakness.
Prices of homes sold fell on a year-over-year basis in 18 of the 50 most populous metro areas in the U.S., with San Francisco leading the way. In San Francisco, selling prices were down 10.1% from a year earlier, Redfin said.
That sale-price decline was followed by that of nearby San Jose, Calif., where prices fell by 6.7%. Austin, Texas, saw home-sale prices drop by 5.5%, and Detroit by 4.3%.
Phoenix, a boomtown earlier in the pandemic, saw home-sale prices fall by 3.7%.
The median asking price of newly listed homes in the 50 top U.S. metropolitan areas was $357,200, up 3.9% year over year, the biggest increase in two months, though the median listing price verged on $400,000 last spring.
A drop in mortgage rates has prompted some buyers to rush into the market. The rate on a typical 30-year fixed-rate mortgage fell to 6.15%, Freddie Mac said on Thursday.
Mortgage demand has surged 28%. The Redfin report identified a 25% rise in mortgage applications over the week ending Jan. 13.
But mortgage payments are still high compared with a year ago. The monthly payment for a median-priced home is $2,262, Redfin said. Monthly mortgage payments are up 30% from a year ago.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
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Lower mortgage rates and flat or lower home prices could help transactions in 2023.
Jim Watson/AFP via Getty Images
Higher mortgage rates put pressure on home buyers’ bottom lines in 2022, and kept some potential sellers on the sidelines. The new year could bring some relief through lower rates and weaker home prices—but don’t expect a surge in sales.
Existing-home sales in November slumped for the 10th month in a row, according to National Association of Realtors, as higher mortgage rates combined with still-high prices to keep some buyers on the sidelines. Pending home sales, a measure of contract signings that precedes the closing of a home sale, also fell, according to the trade group.
The data stands in contrast to the housing frenzy at this time last year. Previously-owned homes in November were sold at a seasonally-adjusted annual rate of 4.09 million—the lowest figure since the Covid-driven housing market pause in early 2020.
Comparing the most recent month’s home sales to the same month last year illustrates the scope of the turnaround. In November 2021, existing-homes were sold at a rate of 6.33 million—a level roughly 35% higher than the same month this year.
Bidding wars, though still a factor, are less prevalent than earlier in the pandemic,
Redfin
data show. Roughly 40% of Redfin offers faced competition in November, the brokerage said last week—well below the roughly two-thirds of offers that experienced bidding wars in November 2021.
Home prices, too, have lost steam. S&P CoreLogic Case-Shiller Home Price Indices data released earlier this week shows that prices fell in 20 of the nation’s largest metropolitan areas in October.
Less comprehensive measures of home price changes, such as the median existing-home sale price, have also pulled back, falling 10.4% in November from its all-time high earlier this summer. On a year-over-year basis, prices were 3.5% higher than one year ago—the slowest such growth since June 2020.
Higher mortgage rates, which rose through much of the year as market participants accounted for tighter monetary policy, rapidly cooled the hot pandemic housing market. Industry forecasters expect total home sales in 2022 to be roughly 5.8 million, a 16% decrease from 2021, according to an average of recent forecasts from
Freddie Mac
,
the National Association of Realtors, and the Mortgage Bankers Association.
The slide is set to continue next year: the four forecasters on average expect sales to fall an additional 13% on average in 2023, to a total of five million sales. Mortgage rates are only part of the equation.
“We expect housing to continue to slow, even though mortgage rates have come down recently,” Doug Duncan, Fannie Mae’s chief economist, said in a statement accompanying a release of the government-sponsored enterprise’s monthly forecast, which calls for total home sales to fall to 4.6 million in 2023. “Home purchases remain unaffordable for many due to the rapid rise in rates over the last year and the fact that house prices, though certainly slowing and in some places declining, remain elevated compared with prepandemic levels.”
The forecasters on average expect mortgage rates to pull back throughout 2023—but rates will still be high relative to lows earlier in the pandemic. On average, the forecasters expect mortgage rates to be about 6.4% in the first quarter of 2023 before retreating to 5.7% in the fourth quarter.
Estimates of home prices next year vary, in part because different organizations base projections on different indexes or data points. Despite variations in methodology, many forecasts foresee prices in 2023 flattening or falling compared with 2022.
Zillow
,
which forecasts fluctuations in typical home values, foresees values dropping 0.7% nationally between November 2022 and November 2023, according to its most recent forecast. Values in eight of the nation’s 10 largest metropolitan areas are expected to be lower compared with this November, with only Atlanta and Miami home values forecast to be higher by the end of November 2023, according to Zillow.
Such a decline would not erase home value gains experienced during the pandemic as prices rapidly rose. At $357,544, Zillow’s typical home value this November is about 44% higher than that of November 2019.
The Mortgage Bankers Association’s December forecast calls for year-over-year home price growth measured by the FHFA US House Price Index to remain positive through much of 2023 before dropping 0.6% year-over-year. The trade group expects the slump to continue through much of 2024.
“Inventories of new homes are increasing at the same time that demand has remained quite weak, and more builders appear to be offering price cuts as well as other concessions to move properties,” economists Mike Fratantoni and Joel Kan wrote in a mid-December release. They added that the low inventory of existing homes and lack of distress sales “will prevent a deeper decline in national home prices,” but said they expect more quarters of negative year-over-year price changes than they previously forecast.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
DWS, the asset manager majority owned by Deutsche Bank, plans to grow its passive and alternatives businesses as part of a three year, €70m investment programme.
The Frankfurt-headquartered fund house unveiled the plan to “grow shareholder value and to tap into the company’s full potential” on 7 December.
It includes expanding investment capabilities in the Americas and Asia Pacific via strategic partnerships.
To fund the plan, DWS said it will “reallocate financial resources from other parts of the business”, having identified several areas where it can reduce costs by around €100m.
This includes selling certain businesses and saving costs in other areas, such as overhauling its IT platform.
DWS wants to grow passive assets under management by more than 12% each year up to 2025, and has set a 10% annual growth target for its alternatives business.
The asset manager’s Xtrackers business is currently Europe’s third largest exchange traded funds provider behind iShares and Amundi.
DWS said it wanted to reclaim the number two spot in Europe, having been overtaken after Amundi’s acquisition of Lyxor last year. It has also embarked on a growth plan in the US.
The growth plans for Xtrackers come as ETFs continue to gather significant assets. Data from consultancy ETFGI shows the European ETF industry pulled in $7.3bn of net inflows during October alone, bringing the sector’s total haul for the year so far to $69bn.
READ DWS boss Stefan Hoops hits back at ‘critical reporting’ on asset manager
In the US, ETFs have gathered almost $503bn since January.
“We have a strong brand in Europe, but we have been underinvesting in the US for some time,” Stefan Hoops, chief executive of DWS, told journalists. “When large market leaders are investing a lot , you can either invest a lot or get out. There is no point starving a franchise.”
On alternatives, Hoops said the €126bn division was “the best kept secret at DWS”.
“When you look at growth trends for alternatives, market research suggests alternatives will continue to grow because of supply and demand factors — the demand side being retail being much more interested in alternatives, and on the supply side the expectation banks will provide less balance sheet lending to the real economy.
“We feel that combination of supply and demand is our right to compete. We understand retail and we have established sourcing channels, not just through Deutsche Bank, but other banking partners.”
The asset manager, which has seen its share price fall by around 11% this year, said it plans to pay a special dividend to shareholders of up to €1bn in 2024.
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To contact the author of this story with feedback or news, email David Ricketts
A duplex apartment in one of the most prestigious co-op has sold for $19 million.
JACOB ELLIOTT
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A duplex in one of the most prestigious co-op buildings in San Francisco has sold for $19 million, the highest price paid for an apartment in the city so far this year, according to the Multiple Listing Service.
The four-bedroom residence was listed in January for $30 million, and the price dropped to $19 million in August. It went into contract in early November and closed last week, according to listing records and Sotheby’s International Realty–San Francisco Brokerage, whose agent Gregg Lynn represented the seller, while Mary Lou Castellanos represented the buyer.
“At over 7,000 square feet, the apartment is one of the largest in San Francisco and is located in its most revered cooperative building,” Mr. Lynn said in an email.
The sales price reflected the market condition in 2022, whereas fewer buyers are competing for large apartments and able to find opportunity, Mr. Lynn said.
The was designed by architect Conrad Alfred Meussdorffer in 1924 in his signature Beaux-Arts genre, featuring a grand entrance and a porte cochere.
JACOB ELLIOTT
“If they are to sell, other listings will be—or have already been—reduced to their right price for today’s market,” he said. “San Francisco remains a desirable location for full- or part-time residence, and there hasn’t been in recent memory a better time to purchase.”
FROM PENTA: Billionaire Businessman Ronald O. Perelman’s Design Collection Heads to Auction
The cooperative building, located in the tony Pacific Heights neighborhood, was designed by architect Conrad Alfred Meussdorffer in 1924 in his signature Beaux-Arts genre. It has 10 full-floor apartments and features a grand entrance, a porte cochére, private gardens and an attended lobby.
The apartment has a central foyer with Versailles-patterned hardwood floors, a circular floor plan for entertaining, a large living room with a fireplace and large windows framing panoramic views of the Golden Gate Bridge, Alcatraz and Russian Hill, a great room with a fireplace and views of the Bay, a library and a conservatory that opens to one of the terraces, the listing said.
The primary bedroom suite occupies the second floor and comes with dual marble baths and two private dressing wings, according to the listing.
William Oberndorf, founder of the investment firm SPO Partners and a local philanthropist, and his wife, Susan, purchased the home in 2018 for $25 million, property records show.
The buyer was listed in the property records as a limited liability company.
Both parties could not be reached for comment.
This article originally appeared on Mansion Global.
The recently departed chief executive of the UK’s competition watchdog has been told he is not allowed to lobby the regulator or government for two years as he takes on a role with US consultancy Keystone Strategy.
Dr Andrea Coscelli left the Competition and Markets Authority’s top job in July, and will now co-head Keystone’s European operations and spearhead new London and Brussels offices.
According to a letter published by the government’s Advisory Committee on Business Appointments, which rules on applications for top civil servants looking to take on outside work, Coscelli will face a number of restrictions to “mitigate the risk he may be seen to offer Keystone and its clients any unfair access and influence on regulatory matters”.
These include not advising Keystone on any work that went on during his time as CMA chief, or lobbying regulators in a personal capacity for two years.
The “significant knowledge of privileged material” Coscelli gained while probing mergers and cartels for the watchdog means he cannot take on the Keystone role until January.
READ Race to chair CMA down to six candidates
The Coscelli letter was first reported by The Times. The CMA and Keystone Strategy have been approached for comment.
Acoba’s advice comes at a key time for the City’s relationship with its competition watchdog. A wide-ranging probe into potential anti-competitive practices across financial services continues to drag on, having been extended on multiple occasions.
With the next update expected in the Spring after more evidence gathering recently, some experts are predicting that the CMA’s findings could be harsher than initially expected.
The CMA will also play a part in overseeing how open banking technology is rolled out and regulated as part of a new committee of regulators.
A National Audit Office report published in May found that while the CMA’s responsibilities had significantly increased in the wake of Brexit, “recruiting the right specialist skills” remained a challenge, with around a quarter of legal services and economics posts remaining vacant.
READ Open Banking boss quits over bullying and sexism allegations
Former senior CMA staff have ended up taking roles in the private sector after their departures. Former chair Lord Andrew Tyrie joined law firm DLA Piper as a political consultant, after departing in the wake of disagreements with Coscelli among others on the board.
Coscelli’s departure coincided with a period of wider uncertainty at the top of the competition watchdog. Tyrie’s early departure left an interim chair in charge. After a lengthy appointment race, former Boston Consulting Group senior partner Marcus Bokkerink was appointed to the role some two years later.
Coscelli’s chief executive post is also being filled on an interim basis. Coscelli announced his planned departure to colleagues in June 2021, Sky Newsreported.
To contact the author of this story with feedback or news, email Justin Cash
Dawid Konotey-Ahulu co-founded investment consultancy Redington in 2006, having left Merrill Lynch where he was part of a team that implemented the first full LDI derivatives transaction for a UK defined benefit pension scheme.
He went on to co-found 10,000 Black Interns, and recently won the Outstanding Contribution Award at Financial News‘s Excellence in Fund Management Awards.
FN caught up with Konotey-Ahulu to talk overcoming challenges, LDI’s future, and his aspirations for diversity in the City.
You were turned down for a pupillage after your legal studies because the chambers you applied to said they had hired a Black person the previous year. Was this a turning point for you?
I was told explicitly I wouldn’t be part of the mix so I started to look elsewhere and found a role working for a law firm in the City. I ended up doing that for a year, then worked for a bank as a lawyer. In 1990 I moved across to NatWest Capital Markets, so I was still a lawyer but working in City institutions.
In 1991 Robert Maxwell fell off his boat and I was the lawyer who was trying to unravel what he had done. I then got sponsored and mentored by Duncan Goldie-Morrison, who was deputy CEO of the whole operation. He thought I’d do well to work the mainstream swaps and derivatives business and suggested I move across. I was quite resistant as I had studied law for a long time and was being asked to move into an area that was very numbers based.
I almost got fired when a new boss came in. He was very impatient and wanted to get rid of me. My immediate boss at the time took it upon himself to show me what to do. He helped me turn things around and find my feet.
Essentially I was given an opportunity by two people who took a chance on me when I wasn’t the obvious choice.
You set up Redington, MallowStreet and 10,000 Black Interns from scratch. Where does your entrepreneurial drive come from?
I grew up in Accra with not much money. My father was a government doctor on a dollar a day. You had to be inventive and innovative because we didn’t have much. We had to find ways of being engaged and doing stuff that was interesting.
It was also a violent time. I grew up during a time of coups and revolutions and it was a very tough time. I became comfortable with ambiguity.
I left Ghana in 1979 and my family and I came to the UK as refugees. I was the only Black kid in the school I went to. On my first day the biology teacher asked my name and said it was too hard to pronounce, so said I could be called Joe. I ended up being called Joe throughout my time at school. The experience made me resilient. You have to figure out how to deal with the cards you are dealt.
READ Check out all the snaps from FN’s fund management awards
I’m also not afraid of stepping out. My view earlier in my career was that the pensions industry needed to manage risk better. But to do that and change things, I realised I had to leave my job at Merrill Lynch. That stepping out was akin to me leaving Ghana and coming to the UK.
10,000 Black Interns has been a big success. What’s next for this initiative?
We have seen an extraordinary response. We got 2,000 internships for the first year and we’ll have another 2,000 for 2023 across 30 different sectors. It has changed the game and everybody is up for it.
In the past I have talked about ‘kinks in the hosepipe’. If you are from a minority there are kinks in the hosepipe of life where the water just stops. These can be at different points of life, such as when you are deciding what to do after school or choosing a career path.
What 10,000 Black Interns has done is unkink the hosepipe when people leave university. But there are other kinks, such as helping people to progress and enabling them to find a place at the top table. We will develop and evolve into an organisation that doesn’t just place people, but helps them through the journey to help them progress all the way through.
If we put 4,500 people into companies and 3,000 leave, that’s not good. You want 90% to stay, which is how you change the face of UK Plc.
LDI has come under scrutiny following the recent turmoil in the pensions market. Is it still fit for purpose?
The world moved to much stricter accounting after Enron. When FRS 17 accounting standards came in [which put pension scheme deficits on company balance sheets], it completely changed the game. Within a short space of time there were enormous debts appearing on corporate balance sheets. If you looked at any of the financial press in the early 2000s, all they were talking about were these enormous pension deficits which threatened to destroy UK Plc. There was an enormous need to control the volatility of pension deficits.
What we were trying to do was to immunise companies from further calls on their cash. The idea was to freeze the deficit so a company had a target to aim at and knew how much it could afford each year for the next 15 years, while allowing it to continue to invest in equities to top up the rest of the deficit to full funding.
LDI was trying to solve a very specific problem. All these pension obligations had been written without costing them. LDI has worked and there are millions of pensioners who will now be getting their pensions. If we hadn’t gone down that route, companies would have been forced to pay billions of pounds into the pension fund to keep it topped up — that’s money they wouldn’t have been able to invest in their business and innovate.
READ How the Bank of England helped ‘alleviate pressure’ on LDI clients
What we saw with the mini budget was extraordinary. We saw the biggest move in the real yield — which drives the size of the collateral calls — that we had ever seen.
But we are living in a new regime. We do need a rethink around collateral and liquidity generally, as well as extending credit lines and being prepared to wait for collateral. Banks will charge for that facility but it’s something that might need to be looked at as a possibility.
Many pension schemes will be able to hold more collateral than they were holding. If we get biblical about it, it’s a bit like having Noah’s Ark. Once the rain has gone and it’s dry ground, do you chop up the Ark for firewood or keep it just in case? You’d probably keep it for a long time just in case.
What are the biggest threats for the fund management sector right now?
The immediate challenge is how we establish normality with the pensions industry. But the S in ESG is also huge. This is the decade in which we have to get it right.
There is a generation coming through who really care about this and want to work in organisations that look after their people and do the right thing, and don’t necessarily have the usual people around the table.
One issue is becoming more diverse, but it’s also about inclusivity. People will say they joined a firm but that they didn’t fit. I know what it’s like to stumble, almost get fired, and have someone make it their personal responsibility to make sure you are a success. People from minorities have their own issues, and it’s about understanding them and helping. When the industry cracks that, more people will stay and there will be more people to get promoted.
If you looked at me in 1992, there was no way you would have bet on me. And yet four people at various points in my career were willing to take a bet on me, and I like to think they have been proved right in the end.
To contact the author of this story with feedback or news, email David Ricketts
Investors pulled more than £180m from UK property funds during October, making it the worst month for the sector since June 2021 when the Delta variant of Covid was at its peak.
Figures from Calastone show a spike in sell orders for UK property funds last month in the weeks following the UK government’s mini-budget announcement at the end of September.
The mini-budget led to a slump in sterling and an emergency £65bn bond-buying programme from the Bank of England.
Outflows of £184m were driven by a sharp increase in outright sell orders for property funds, rather than a buyer’s strike, according to Calastone.
Sell orders jumped 42% during the month, although outflows tailed off after Liz Truss announced her resignation as prime minister on 20 October — dropping from an average of £12m during the month she was in office to £3m after her departure.
“The mini-budget at the end of September prompted a surge in market expectations for UK interest rates far beyond what had been discounted before Liz Truss and Kwasi Kwarteng revealed their big deficit plans,” said Edward Glyn, head of global markets at Calastone.
READ L&G, Abrdn reassure over property funds after Columbia Threadneedle suspension
“The commercial property market is very sensitive to rising interest rates – they not only hit profit margins by impacting funding costs, but they also cool the economy. The likelihood of a sharper and longer recession is bad for tenant demand and rent arrears and this hit sentiment too.”
The spike in outflows came as some asset managers imposed restrictions on their UK property funds.
Columbia Threadneedle said on 11 October it had suspended dealing in its £453m UK Property Authorised Investment fund as well as its feeder, the UK Property Authorised trust following an increase in redemption requests from investors.
The suspension came days after Columbia Threadneedle announced withdrawals from its £2.3bn Pensions Pooled Property fund would move from daily to monthly “due to liquidity constraints resulting from the recent market volatility and a subsequent increase in redemption requests”.
BlackRock and Schroders also imposed limits on the amount institutional investors can withdraw from some of their UK property funds, as a growing number of pension clients looked to cash in their holdings in less-liquid assets such as real estate.
The Calastone figures show wider equity fund outflows slowed to £422m last month, down from the £1.9bn and £2.3bn recorded during August and September respectively. Despite a reduction in outflows, October still registered as one of the top 10 worst months on record for the category.
Calastone said improved global market conditions helped reduce overall selling activity in UK-focused funds during the month, with outflows slowing to £424m.
However, it was Truss’s departure from Downing Street that proved to be key to stemming outflows.
In the six days before Truss announced her resignation, investors pulled a net £238m from UK-focused equity funds, according to Calastone.
In the three days following her departure, which included the installation of Rishi Sunak as prime minister, UK equity funds posted modest inflows of £2.5m.
To contact the author of this story with feedback or news, email David Ricketts
Investor concerns about Blackstone’s big retail real estate fund have weighed on its stock in recent months and comments by management last week didn’t appear to help.
Although Blackstone reported an earnings beat on 20 October, its shares dropped 4.2% after the report before rebounding on 21 October to finish up 1.7% at $85.43. The stock is off more than 40% from its November 2021 peak of about $150.
Investors may have been reacting on 20 October to remarks made in a conference call by president Jonathan Gray about Blackstone Real Estate Income Trust, which is known as Breit.
Gray said it was possible Breit, Blackstone’s $70bn flagship retail product, could go into redemption — meaning the fund would be paying out more to investors who are redeeming shares than it is receiving in new investments.
Breit and Blackstone Private Credit Fund, another retail product, have become important sources of asset and fee growth for the firm. This makes the investment community sensitive to flows. Breit generated over $1bn in fees for Blackstone in the first half of 2022, making it one of the firm’s most lucrative investment offerings.
Unlike public REITs like Prologis and Equity Residential, Breit isn’t publicly traded.
Blackstone executives fielded several questions on Breit during the company’s earnings conference call on 20 October, and one analyst asked whether it could “go into redemption in the coming months.”
Gray replied: “I would say as it relates to near-term flows, yes, it’s possible that we could see negatives over some period of time.”
Breit had enjoyed huge inflows in 2021 and the early part of 2022, roughly doubling in size. The fund raised $4.2 billion of capital in the third quarter, down from $6.6 billion in the second quarter, but Blackstone didn’t provide a net flow figure based on inflows less redemptions.
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Financial News sister title Barron’s wrote critically on Breit in August, arguing that retail investors should consider public REITS as an alternative.
And while many public REITs are down over 30% this year, Breit has returned a positive 9% through the end of September. Our article also cited as negatives Breit’s high fees and higher leverage than many public peers.
In response, Blackstone pointed to Breit’s strong performance since its inception in 2017, its exposure to two of the strongest categories in real estate (apartments and warehouses) and its high levels of liquidity. Breit has returned 13% annually since its inception, four times that of REIT benchmarks.
There has been greater investor focus on the gap between Breit’s performance and those of public REITs in recent months, as the REIT sector has continued to decline while Breit’s net asset value has continued to go up. The selloff in public REITs reflects investor fears about an economic slowdown and the impact on rents, as well as higher rates.
On the call, Gray cited the strong financial performance of Breit this year as warehouse and apartment rents are up sharply. He added that the earnings strength of Breit this year has more than offset the impact of higher rates on real estate valuations.
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Oppenheimer analyst Chris Kotowski said that public REITs in the apartment and logistics sectors also are showing good financial results, but their stocks are down 30%. Kotowski contrasted Breit’s performance versus public REITs and asked management during the conference call if “they all of a sudden look more attractive relative to your valuations.”
Gray responded that public markets are more volatile than private markets, which is the basis for Breit’s pricing, and that Breit has “ample liquidity,” having met all redemption requests since its inception in 2017.
In a client note on 21 October, JPMorgan analyst Ken Worthington wrote of Breit: “We do see risk to net sales in the near term of intermediaries investing in public real estate funds that have seen prices fall 30% vs. B-Reit (for example) with returns up 8.5% this year.”
Morgan Stanley analyst Michael Cyprys wrote that retail flows have slowed, as expected given the economic environment.
“But we have confidence that BX’s distribution prowess and brand should continue to attractively position the firm to penetrate a ~$70tn retail TAM.”
Blackstone’s distributable earnings were $1.06 a share in the third quarter, down 17% from the year-earlier period, but they exceeded the consensus estimate of 98 cents.
Write to Andrew Bary at andrew.bary@barrons.com
This article was published by Barron’s, a fellow Dow Jones Group brand