Blackstone Inc. (NYSE: BX) is the largest alternative asset management company in the world, with nearly $1 trillion in total assets under management as of Sept. 30. The financial institution has several multifaceted funds designed to offer diversification benefits to investors.
However, not all of Blackstone's funds have been a pinnacle of success. Its Diversified Multi-Strategy fund lost over 90% in value over the past four years until mid-November, causing Blackstone to shut the fund by the end of 2023. At its peak in 2018, Blackstone's Multi-Strategy Fund held over $2.3 billion in assets. However, this fell to roughly $200 million as of Nov. 21, according to Bloomberg.
UCITS Directive Leads To Losses
Blackstone's Multi-Strategy Fund operated under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive of the European Union, offering investors daily liquidity for their capital. UCITS funds are structured to provide investors with more regular opportunities to access their capital compared to hedge funds.
However, several regulatory impositions are placed on UCITS-regulated funds that can result in lackluster performance. For instance, the regulations stipulate that investors must have the ability to regularly buy and sell their investments in the fund, often with daily trading options. The rules also prohibit any single asset from constituting more than 10% of the fund's total assets under management. Practices commonly employed by hedge funds, such as direct short selling, are prohibited, and there are constraints on leverage as well as the proportion of illiquid assets held by the funds.
Because of geopolitical risks and other market headwinds, alternative investments have underperformed over the past few years, especially as the Federal Reserve maintained an aggressively hawkish stance to combat inflation woes. With investors pulling out their capital at the first sign of trouble, Blackstone's Multi-Strategy Fund lost over 90% because of market volatility.
"This is a small, legacy fund. We are in talks with clients to move their capital to newer strategies that offer greater flexibility than the current structure allows," Blackstone told the Financial Times.
UCITS funds are specifically structured to provide investors with more frequent opportunities to access their capital compared to hedge funds. However, as markets remain volatile amid impending slowdown fears and other headwinds, prominent hedge funds are extending the duration of investor lock-ins as a preventive measure against abrupt capital withdrawals in a demanding market setting, which could trigger a fire sale of assets and result in more substantial losses.
Alternative Funds
Blackstone has launched several new funds focusing on alternative assets since late last year. On Nov. 30, the firm launched its Strategic Partners Real Estate VIII L.P. fund, among the largest real estate portfolios in the market. The real estate secondaries fund has invested nearly $2.6 billion in over 540 property portfolios.
"We remain committed to generating strong risk-adjusted returns for the millions of beneficiaries that our investors represent. With our substantial scale and private market footprint, we believe we are well-positioned to capitalize on the substantial, and growing, opportunities in the real estate secondaries market," Verdun Perry, global head of strategic partners, said in a press release.