A real estate trust fund under Blackstone Group, one of the world's largest asset management companies, suffered its lowest annual return rate since its establishment in 2017 last year.
BREIT has not been able to avoid the negative impact of rising interest rates and a slowdown in the real estate market. It suffered a loss of 0.5% for the entire year of 2023, with a loss of 1.2% in December last year alone. Its annual performance is significantly behind the total return rate of 26% of the S&P 500 index.
The return situation of Blackstone Real Estate Investment Trust Fund (BREIT) prevents asset management companies from participating in fund profit sharing. According to regulations, as long as the annual return on investment in BREIT reaches 5%, the company can take a share of the total return. This also means that for the first time, the trust fund was unable to obtain carried interests.
Carried equity is a reward that generates returns for transaction matchmakers and is also a major incentive factor in the industry.
The slowdown of the real estate market
Since its establishment, BREIT has brought huge profits to Blackstone Group, with its scale expanding to $70 billion, allowing the company to gain a dominant position among financial advisors and individual investors.
In the past few years, BREIT's return rate for the entire year of 2022 was 8.4%, and the return rate for 2021 exceeded 30%.
However, the poor performance of the fund in 2023 indicates that the slowdown in the global real estate market has put considerable pressure on the fund's return rate.
Due to the heavy pressure brought by rising interest rates on the commercial real estate market, the fund has been facing significant redemption volumes since the end of 2022 and has had to limit redemptions. A letter to shareholders issued this month shows that BREIT has returned $14.3 billion in cash to investors since November 30, 2022.
Analysts predict that Blackstone Group's annual distributable earnings will decrease from $6.6 billion last year to around $5 billion in 2023, partly due to the slowdown in BREIT.
However, there are also signs that the worst period seems to have passed. Blackstone Group pointed out this month that redemption requests have significantly decreased, with redemption requests in December dropping 80% from their peak in January last year.