The Blackstone Group has been asked by some of its real estate investors to allow them to reduce their unfunded commitments as they struggle with liquidity.
Stephen Schwarzman, chief executive officer and co-founder of the New York-based firm, said during an earnings call earlier this week that a couple of “retail investors at the small end of what we do” had asked for ways to reduce unfunded commitments.
One of the investors took a big hit in the Bernard Madoff scandal, he said.
The revelations came as Schwarzman also warned that pricing in the secondaries market had been slashed to “artificially” low levels as cash-constrained investors flood the market with fund interests.
“All the sudden there was a rush to put these up for sale just to get liquidity,” Schwarzman said during the recent Blackstone earnings call. “The problem that occurs is that you have four- or five-to-one sellers to buyers, and that artificially drives the price way below what I think [their] value is. It’s driving values so low that fundamentally you can’t transact.”
Blackstone private equity and real estate fund interests have not been unloaded on the secondaries market, Schwarzman added.
“We have, to our knowledge, not been involved with any of those [deals] with our stuff,” he said about secondary transactions.
Blackstone’s real estate practice reported negative fourth quarter revenues of $477.8 million and a loss of $718 million for 2008. The loss compares to annual gains of $1.3 billion in 2007. The loss was driven primarily by depreciation in the fair value of the funds’ portfolio investments.
“The mark downs are disappointing but they don’t necessarily represent a permanent loss of value,” he said.
Blackstone has more than $12 billion of dry powder in its real estate funds, “the largest amount of available capital in the industry”, according to Schwarzman.