Blackstone is doubling lock-up periods for some Asian investors in its flagship retail private equity fund to prevent a repeat of the waves of redemptions from its property and credit funds. New Singapore and Hong Kong clients of the $29bn BXPE fund will be forced to hold shares for a minimum of four years before selling, or pay a penalty fee. Unlike classic closed-end private equity funds, BXPE is a so-called evergreen fund that allows clients to regularly deposit and withdraw cash.
One person close to the fund said that because investors in Hong Kong and Singapore do not pay capital gains when cashing out investments, clients there were more likely to trade in and out of funds. The change to the fund’s terms, which is designed to discourage investors from trading in and out of a vehicle with illiquid holdings, comes as investors put record amounts of money into BXPE. The fund raised nearly $3bn last quarter while redemption requests were less than 0.5 per cent, helping boost Blackstone’s fees from managing the vehicle.
But the inflows also make the firm vulnerable if investor sentiment were to shift rapidly, putting it under pressure to sell investments meant to be held for the long term. Blackstone’s $60bn Breit property fund suffered a wave of redemptions in 2022 after withdrawals in Asia spread to Europe and the US. Many then reinvested in public property markets after valuations plunged.
The rush for the exit forced the fund to limit redemptions, causing a crisis at the wider group. Blackstone’s $45bn retail credit fund, Bcred, was also hit more recently by high redemption rates in Asia. Blackstone capped withdrawals from its flagship private credit fund at 5% in June after investors sought to pull $4.5bn.
Blackstone in recent weeks introduced a BXPE new share class that extends the period in which new clients will be penalised for redeeming their investments, filings show. Clients investing from Hong Kong and Singapore will have to buy the new share class, the firm told the FT, which will charge them 5 per cent of the value of their holdings for redeeming within four years. Existing share classes lift the penalty after two years.
Blackstone plans to include the longer lock-up period for its individual clients in the two financial hubs when it launches its infrastructure fund, the person close to the firm said. BXPE predominantly invests in buyout deals that are hard to monetise quickly. It only allows redemptions up to a cap of 3 per cent of the fund’s net assets every quarter, compared with the 5 per cent cap used by its credit and property funds. “We believe these [new] share classes are the most appropriate structure for investors seeking exposure to the long-term nature of private equity,” Blackstone told the FT.
Investors in Hong Kong, pictured, and Singapore do not pay capital gains when cashing out investments. The share prices of Wall Street’s private capital groups have tumbled this year in large part due to redemptions at their credit funds driven by fears of falling returns and rising defaults. In June, Blackstone capped withdrawals from its flagship private credit fund at 5 per cent after investors sought to pull $4.5bn, equal to 10 per cent of the vehicle’s net asset value.
The fund is still partially gated, with redemption requests persisting through the third quarter. Blackstone’s rivals such as Apollo Global, Black Rock’s HPS and Ares Management have also limited withdrawals from their funds this year. Shares in both Blackstone and KKR are down more than 20 per cent so far this year, while Apollo has shed 18 per cent.
Source: Financial Times Companies · Summarized by HeadlinesBriefing