| | | | | | | Presented By Advisor | | | | Axios Markets | | By Emily Peck and Matt Phillips · Jan 05, 2023 | | We're on the board! Stocks actually rose yesterday pushing us into the green for 2023. (The S&P 500 is up 0.4% two sessions into the trading year.) 📧 Hey, Tesla shareholders: What are your thoughts about the beating the stock, and perhaps your portfolio, took over the last year? Email me at matt.phillips@axios.com. Today's newsletter is 1,098 words, 4.5 minutes. | | | | | | 1 big thing: Private equity's mass market test |  | | | Illustration: Aïda Amer/Axios | | | | A turbulent market has highlighted just how difficult it is to provide retail investors access to illiquid investments like real estate and other private assets, Axios' Kate Marino writes. Why it matters: Raising funds from the "mass affluent" has become the next big growth area for private equity (PE) firms that historically tapped institutions and the uber-wealthy. Driving the news: In recent months, a spate of redemption requests by investors in the Blackstone Real Estate Income Trust (BREIT) is proving to be something of a test for the relatively new "semi-liquid" fund structure created for individual investors. - Notably, it's a legacy-PE-style institutional investment announced this week that may help shore up confidence — and liquidity — in BREIT, the premiere consumer-focused fund.
The backstory: Semi-liquid funds are a recent innovation, with lower minimum investments and more withdrawal options than traditional private market funds that lock up money for years at a time. - Firms like Apollo and Starwood manage these types of vehicles, too (the latter has also faced high redemptions).
- Since BREIT's assets — like residential real estate and warehouses — can't be bought and sold on demand to meet daily redemption requests, the fund caps withdrawals at 2% of net asset value per month, and 5% per quarter.
The intrigue: BREIT redemption requests exceeded the fund's withdrawal limits over the last several months, so some investors in need of cash couldn't take all their money out. - Just 43% of requests were approved in November; the fund was up about 9% year-to-date at the time, the FT reported.
- The $68 billion fund was sitting on $9 billion of cash as of December — more than enough to handle a quarterly withdrawal of 5% for at least a couple of quarters, though perhaps not indefinitely.
The latest: The University of California's endowment is investing an eye-popping $4 billion dollars in BREIT. - The cash injection is most notable for how it reaches back to the classic PE playbook: the massive size, institutional origin — and a six-year lock-up period.
But, but, but: Unlike traditional PE, the endowment will receive a minimum 11.25% annual return, with any shortfall (up to $1 billion) backstopped by Blackstone itself — quite an incentive. Zoom out: When BREIT investor redemptions exceeded the cap, the fund's structure worked exactly as it was supposed to. There are pros and cons to this, of course. - Cons: Investors who wanted or needed their money couldn't get their hands on all of it immediately.
- Pros: This is the whole point of private market funds. The lack of immediate and total liquidity prevents a doom loop of selling that sinks asset prices.
What to watch: How much more demand for withdrawals BREIT faces in the coming quarters — and whether the fund will want to scare up more institutional support. That will be eye-opening for an industry that's plowed resources into new products designed to reach the masses. |     | | | | | | 2. Catch up quick | | ⬆️ Amazon layoffs exceed projections, hitting over 18,000 workers. (WSJ) ✨ Top IMF official: U.S. inflation has not "turned the corner yet." (FT) 💰 Coinbase reaches a $100 million settlement with New York regulators over compliance shortcomings. (Axios) | | | | | | | | 3. Home sellers are basically throwing money at buyers right now |  Data: Redfin; Chart: Axios Visuals Home sellers are doing way more to entice homebuyers these days, according to data from Redfin published this morning, Emily writes. Why it matters: Oh, how the tables have turned. During the pandemic real estate frenzy, sellers held all the cards and desperate buyers did whatever they could to close a deal — waiving the inspection, paying way over asking, etc. - Now, it's homebuyers who must be wooed.
Details: 42% of sellers offered at least one concession to buyers, often in the form of cash credit for things like repairs, closing costs, or mortgage rate buydowns. - That's up from 31% a year ago, and back to the same level as July 2020, when the boom was just getting underway.
State of play: Concessions were smaller and much less frequent last year, Van Welborn, a Redfin agent in Phoenix, tells Axios. - But when mortgage rates started shooting up last fall, sellers grew desperate to attract buyers, and concessions mounted a comeback.
- Since sellers built up so much equity over the past few years, they've been willing to shell out more cash than before the pandemic, he says.
- In the last month, one of Welborn's clients got $25,000 from a seller on a $650,000 house to pay for a roof (plus they threw in all of the home's midcentury modern furniture for $10). Another collected $10,000 to help with closing costs.
Plus: Homebuilders are offering concessions to real estate agents who bring in buyers, too. One builder in Houston is giving agents a $10,000 bonus on top of their typical 3% commission and a chance to win a Mercedes, per a flyer, shared with Axios. Zoom out: The rising popularity of concessions could help explain why home prices haven't fallen faster, said Angela Cherry, communications director at Redfin. - With a concession, buyers pay less money, but list prices and closing prices don't change. "They're kind of masking the true cost of the transaction," she said.
- Homebuilders especially like them because they're reluctant to lower list prices and anger folks who recently bought new homes in the same community, said Dan Hansen, executive director of market retail at LoanDepot, a lender that specializes in new construction.
- Home prices fell steadily in the fall, per Case-Shiller's December report.
| | | | | | | | A message from Advisor | | Never make another financial decision alone | | |  | | | | We all have that sinking feeling we're missing out on opportunities with our money. Advisor.com offers expert financial planning and investing for a flat annual fee. Whether you have $0 or $1M in investments, you pay one rate for the same white glove service. Take our quiz to see if you need an advisor. | | | | | | 4. 🍃 Disinflation in the air |  Data: FactSet; Chart: Axios Visuals In early 2023, signs of slowing inflation abound, Matt writes. Why it matters: Inflation is the most important issue facing investors, as it will determine what the Fed does to interest rates, which will in turn drive stock and bond prices. What's new: A December reading on the U.S. manufacturing sector showed factory activity slowing down — and importantly, the prices that producers paid their suppliers fell broadly. - The survey's reading on prices paid fell to its lowest level since the COVID crisis struck, suggesting a strong downdraft in the cost of industrial ingredients.
State of play: The ISM figures were just the latest in a string of numbers that show a pronounced easing of the inflationary forces that hammered markets in 2022. (See natural gas for example.) - Yes, but: More data is required to confirm early inklings that price increases are leveling. (Sometimes data can get squirrelly at year-end and send false signals.)
The bottom line: These indicators are encouraging, but what really matters is when the Fed thinks the inflationary threat has been beaten back conclusively. - The latest minutes from the Fed's meeting last month — published yesterday — suggest officials want a lot more evidence before declaring victory.
| | | | | | | | A message from Advisor | | Never make another financial decision alone | | |  | | | | We all have that sinking feeling we're missing out on opportunities with our money. Advisor.com offers expert financial planning and investing for a flat annual fee. Whether you have $0 or $1M in investments, you pay one rate for the same white glove service. Take our quiz to see if you need an advisor. | | | | Was this email forwarded to you? Sign up here to get Axios Markets in your inbox. Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. |  | | Why stop here? Let's go Pro. | | | | | | Axios thanks our partners for supporting our newsletters.
Sponsorship has no influence on editorial content. Axios, 3100 Clarendon Blvd, Arlington VA 22201 | | | You received this email because you signed up for newsletters from Axios.
To stop receiving this newsletter, unsubscribe or manage your email preferences. | | | Was this email forwarded to you?
Sign up now to get Axios in your inbox. | | | | Follow Axios on social media:    | | | | | |
No comments:
Post a Comment