r/investing
Blackstone guaranteed UC an 11.25% return on $4.5B of BREIT. The collateral behind that guarantee is now spent.
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Rewind: January 2023. BREIT is limiting redemptions, the press is brutal, and the University of California invests $4.5 billion. In exchange, Blackstone guarantees an 11.25% minimum annualized return and pledges $1.125 billion of its own BREIT shares as the backstop. It worked exactly as intended. It bought a marquee name, a locked-up shareholder, and a story. BREIT’s flows turned positive again. But look at the structure. Blackstone’s obligation stops at the collateral, and the collateral is BREIT stock. The thing being protected and the thing doing the protecting are the same asset. Estimated based on July marks: \- UC’s $4.5B is worth about $5.25B \- at 11.25% for 3.5 years, the accrual is $6.58B \- Gap: \~$1.33B \- Collateral, with reinvested distributions: \~$1.29B The cushion is gone, with a year and a half until UC’s first redemption window opens in January 2028. BREIT did 11.1% over the last twelve months. It did 4.4% a year since UC invested. To actually deliver 11.25% out of the pool from here, it needs to compound at roughly 11.8%. UC still comes out fine. Blackstone capped its downside and got the outcome it paid for. The lesson isn’t that anybody got fleeced. It’s that a floor is only as deep as its collateral, and correlated collateral is barely collateral at all. And one more example of Blackstone playing chess while most others are playing...
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