Alternative Investment

KKR real estate fund curbs redemptions in echo of Blackstone move

KKR has become the latest investment manager to limit withdrawals from a property fund, following rival Blackstone Group in imposing curbs after a surge in redemption requests from clients.

The $1.6bn KKR Real Estate Select Trust fund disclosed in a filing that it fulfilled just 62 per cent of investors’ requests for the quarter ended December 1. Investors had sought to redeem the equivalent of 8.1 per cent of its overall net assets, breaching a 5 per cent quarterly limit the fund places on redemptions, KKR said.

The KKR vehicle, known as Krest, is a private fund aimed at wealthy retail investors. The restrictions are further evidence that they are clamouring to get their hands on cash amid fears over a fall in commercial property values.

Blackstone in December announced that it would limit investor withdrawals from its $69bn in assets private real estate fund. Starwood Capital also placed controls on investor withdrawals late last year.

The limit on withdrawals from Krest suggested a “broadening contagion”, and “somewhat debunks the notion that KKR might be a natural beneficiary of Blackstone’s net redemptions”, William Katz, an analyst at Credit Suisse, said in a note.

The redemption caps underscore the risks wealthy individuals have taken by investing in private real estate investment trusts managed by alternative asset managers and a growing crop of similar products created by large banks such as JPMorgan Chase and Morgan Stanley.

The private funds generally offer the ability for investors to redeem just 2 per cent of their aggregate holdings a month, or 5 per cent a quarter. Investors in public real estate investment trusts, by contrast, can sell their holdings in full on public markets.

Alternative asset managers have increasingly turned to retail investors, arguing wealthy investors should have the same ability as pension and sovereign wealth funds to diversify away from public markets. However, to achieve higher returns, the funds ask that investors give up some liquidity rights.

“[We] are balancing providing access to private real estate, which is an illiquid asset class, with the recognition and understanding that the optionality for a level of regular liquidity is an important feature for Krest shareholders,” said Billy Butcher, chief executive of Krest, in a notice to investors.

Butcher emphasised Krest held liquid assets representing 36 per cent of its overall net assets, and that investors had still invested $142mn during the quarter, exceeding redemption requests of $128mn.

Blackstone’s Breit fund is far larger than Krest after it attracted tens of billions of dollars in inflows in recent years.

Redemption requests remained elevated at Breit through year-end. Investors sought to redeem 5 per cent of their assets in the fund in the month of December, according to people familiar with the matter.

Earlier this month, Blackstone announced that the University of California’s endowment would invest $4bn into Breit. Blackstone promised a minimum annual return of 11.25 per cent for six years and will give the endowment up to $1bn in Breit shares if the fund does not achieve that target.

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