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Barclays sees a challenging near-term ahead for Blackstone after the investment firm on Thursday limited withdrawals from its large retail real estate fund. The bank downgraded shares of Blackstone to equal weight from overweight and cut its price target to $90 from $98. That implies upside of nearly 6% for the stock. “While we are positive on the longer-term retail opportunity for alternative assets (and BX generally) we think near-term sentiment for both retail and BX shares will be very challenging,” wrote Benjamin Budish in a note. BREIT withdrawal debacle Blackstone had to limit withdrawals from its $69 million retail real estate fund, or BREIT, for November and December after the investment vehicle received repurchase requests that exceeded both the 2% NAV monthly limit and the 5% quarterly limit. That sent shares of the firm down more than 7% on Thursday. “In November, BREIT repurchased ~$1.3B of shares, representing ~43% of of redemption requests in the month, indicating just over $3B of total redemption requests in November, nearly doubling month over month,” said Budish. “Additionally, our analysis of the fund’s most recent 10-Q and Prospectus filing indicates new November subscriptions slowed to ~$484M, down from $880M in September and well over $1B prior.” Most of the redemptions were from Asia-based investors, who withdrew at a rate eight times that of U.S. investors. While offshore investors represent about 20% of the fund, they make up roughly 70% of withdrawals this year. “That said, now that redemptions have been capped, we worry that negative headlines around the product, and limited liquidity through the end of the year and perhaps longer, could both drive further run[1]on-the-bank type redemption requests, as well as pressure new inflows, as advisors will be less likely to recommend a product that is (for the moment) limiting liquidity,” said Budish. Macro forces at play At the same time, Barclays worries that the rising interest rate environment and moderated performance of BREIT will further weigh on demand for new subscriptions to the fund. While past performance of the fund has been solid – it was up nearly 29% in 2021- the current expected return is more muted and includes a roughly 4.4% annualized monthly distribution. “Given the rapid rise in rates, we expect the relative attractiveness of BREIT (vs. short-term treasuries at 4%+) will recede going forward,” said Budish. Despite the near-term pressures on the fund, Barclays is still optimistic on the longer-term retail opportunity for alternative assets and sees Blackstone as a well-positioned beneficiary. “While the issues related to BREIT largely originated with macro factors, we believe Blackstone has done an otherwise remarkable job building out a sales force and educating advisors, and as the macro environment becomes more supportive, we think net retail flows here are likely to return to growth,” said Budish. “That said, it remains to be seen to what extent the capping of redemptions becomes a reputational issue for the company.” — CNBC’s Michael Bloom contributed to this report.
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