Hodor. Source: Hodor. There are a lot of ways to steer a story. If you are a central banke

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  1. Great piece Rusty. I think fund performance over the coming 6 months or so will be huge in shaping this narrative and whether Blackstone’s attempts at managing it are successful or not. Like you, I believe they’ve done a good job thus far.

    However, if several negative months (regardless of magnitude) are strung together on an investment that investors have ONLY seen reported up month after month after month since it launched then advisors will begin getting calls from clients. The first calls will just be questions, but string a handful of negative months together and those questions could easily change to requests for money. If clients start asking for redemptions (I don’t believe that has happened yet at scale) as opposed to advisors proactively recommending them-that’s when the flood gates could really open, and no amount of narrative control will work.

    Will be interesting to watch

  2. Avatar for rguinn rguinn says:

    Thanks, Johnsoad!

    I think that I agree in general - I mean, of course I agree! You are absolutely correct. With that said, I think that this is the kind of vehicle where Blackstone and its partners retain enough effective control over the marks/appraisals to massage how those negative months manifest. For all the reasons you correctly describe, I fear that moral hazard surrounding the accuracy of the value of the underlying holdings is higher than ever.

  3. Tangentially related, today I received another solicitation for my accredited investors, this time an Exciting :tm:, Cutting Edge :tm: VC fund. I’ve been getting two or three of these a week for the last few months. A year ago I could count on one hand how many I got in a year.

    I wish I could post the deck for this most recent one, it’s…something else. If I wrote half of this stuff out and emailed it to a client FINRA would send Anton Chigurh to my house before the sun set.

  4. Avatar for bhunt bhunt says:

    That’s a quality reference, right there!

  5. Avatar for rguinn rguinn says:

    I trust you know the only reason I even utter the words adverse selection is for everyone’s benefit, D_Y. Advisers, if you didn’t get calls for something you wanted 18 months ago and now you do, let it go to voicemail, and embrace your inner Millennial by never, ever listening to it.

    Just press 7.

  6. Avatar for robh robh says:

    By the time it gets to retail…

  7. I’ve been getting these solicitations, too, en masse, and every mass market asset manager is peddling their credit or real estate fund -a clear sign of the developing tumult. The best one, though, was a pitch to purchase the GP interests of an aging Real Estate LP. I guess they thought we’d feel special and honored. It reminded me of an ERISA plan I ran into once where the plan sponsor (business owner) listed the receptionist as the Plan Administrator. The latter felt so honored with the title. Being a fiduciary sure sounds important!

  8. Avatar for rguinn rguinn says:

    Hah! That’s like four degrees of adverse selection wrapped into one package.

  9. Oh boy, the Endowment Fund. Memories.

    I agree that Blackstone has a huge advantage in this situation in the form of being able to manage the valuations of their properties. I feel like Private Real Estate as an asset class has really mastered the art of BS-ing their marks in a way that I still can’t quite believe their compliance departments let them get away with. Go into a data room for a multifamily development fund and I 100% guarantee that you will not be able to figure out where their portfolio is currently marked because they’ll only show you the projected return for the properties.

    I think the big marks here are the upmarket RIAs that have clients that range from the mass affluent to the low end of HNW–to the advisors who may have grown up managing accounts for people with under $1 million in assets, of course their biggest client who’s worth $10 million seems unfathomably wealthy and sophisticated. They don’t realize that a $10MM client is “retail” to Blackstone and liable to get the worst possible terms to climb onto the lowest rung of private investing.

  10. Avatar for bhunt bhunt says:

    Got this today. An “exclusive event”!

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