BREIT: The most successful fund in history?
Part 1 of a mini-series on BREIT, private assets and the marketing genius of Blackstone.
Hi! It’s George from Investorama - Separating investment facts from financial fiction. Storytelling is great for marketing, but there’s a fine line between storytelling and fiction.
The Greatness of BREIT - Blackstone’s Real Estate Income Trust
I wrote about it before(in liquidity, and REITs), but I hadn’t examined how much it stands above its peers in the fund management industry. It has generated $823M in fees in 2023.
No other fund investing in private assets comes close to its size.
So we’ll need to compare BREIT to the next largest Real Estate fund: Vanguard’s Real Estate Fund (VNQ), which invests in public REITs
VNQ has $32B in assets vs $114B for BREIT it’s leveraged to the amount invested is about $60B
VNQ charges 0.12% vs 1.25% for BREIT + carry + front load
BREIT generates 20x more fees
BREIT dominates so much the Real Estate category that it’s best compared to generalist funds.
In terms of fees, BREIT trumps the largest fund ever: Vanguards’ Total Market Fund (VTI). It has $1.3T in AUM but charges only 0.03% so a total of $450M. Half as much as BREIT.
The only fund that I found that’s more profitable than BREIT is the American Funds Growth Fund of America (AGTHX), which has an expense ratio of 0.63% and manages over $260B, or total fees of $1.6B.
There could be more funds that pass the $1B fee mark, but I haven’t come across any of them, so I guess there aren’t many.
AGTHX is 51 years old, which makes BREIT’s achievement in only 7 years even more remarkable.
In a nutshell, BREIT is a historical commercial success, and it took unique marketing skills to get there.
Seizing the opportunity
One important role of marketing is to identify the right opportunities.
Private REITs for individuals are not new, but they were a murky area of the investment world, characterized by upfront fees of up to 9% and plagued by scandals. They were heavily criticized by the SEC.
After that, most established fund managers exited the private REIT market. But in 2017, Blackstone identified the opportunity and seized it.
They leveraged the Blackstone brand. They brought a much ‘cleaner’ proposition to the market, with lower fees.
The timing was great. With interest rates at zero, income-seeking investors were desperate and BREIT offered a dividend of 4.5%.
But what made the fund unique is that it was a perpetual-life, monthly NAV fund, targeted at individual investors via their advisors, a break from their traditional offering of closed-end funds for institutional investors.
Salesforce: activated
Those products are sold not bought. That’s common knowledge in the industry. It means that nobody’s buying off the shelf from a broker. Someone will pitch it to a buyer. Having worked in fund sales for many years, the possibility of raising $60B for a new fund still makes me salivate.
It’s not clear to me how easily the Blackstone salesforce shifted from pension funds to IFAs, but clearly, their skills were transferrable. If you’ve followed my previous video on IRR there’s a recording of an actual pitch (8:02), and I’m not allowed to say which firm but you are allowed to imagine that Blackstone used similar practices.
The sales commission of 3.5% for Class S and Class T shares; 1.5% for Class D shares paid to advisors also helped.
Great user experience
The press described BREIT as a house of cards. It raised questions about its valuations, the fact that it paid more in dividends than it collected in income, and that even if it limits redemptions the fund could still be forced into a firesale… but if you focus on user experience stable valuations and steady income are great! And that’s the experience that BREIT delivers.
In the next post, I will explore how BREIT manages this user experience and why I don’t think BREIT can collapse, but if you don’t want to wait, it is all related to the latest podcast episode. you can watch it by clicking the link below, or listen to it here.