Blackrock Gates UK Property Fund Redemptions As New Geoeconomic Paradigms Take Hold
MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.
Following a decision reached for the second quarter of 2022, BlackRock has announced that it will postpone redemptions from its $4.2 billion BlackRock UK Property Fund until the third quarter of 2022. This action is in response to difficulties in the UK real estate market, where funds are in charge of properties worth about £17 billion but have established payout limits to prevent `firesales.` The approach made by BlackRock is consistent with those of other significant UK asset managers, including M&G and CBRE Investment Management, who have similarly restricted distributions from their property funds as of September 2022. The nontraded REIT market has also seen this trend, with recent withdrawal restrictions imposed on Blackstone and Starwood funds. Regarding these suspensions of redemptions, the Securities and Exchange Commission has been in touch with both companies.
Why Do Funds Gate Redemptions?
Funds suspend redemptions when too many investors try to exit at around the same time, and it is a controversial practice. On one hand, these funds own real estate, which is far from liquid, so when a critical mass looks to exit, this must yield to the reality of the market. However, this reality can be improved, with focused capital set to the task. The issue is why would a fund manager prioritize investor exits over the investment opportunities they are tasked with exploiting, and the answer is they wouldn`t unless they wanted to taut `ease of exit` as a marketing strategy, which few want to trumpet. So we are left with the essential illiquidity of large assets holding up flows of the funds that represent this value, and it`s important to feel where this barrier lies. The market looks like reality, in other words, at present and investors will just have to live in it…until they don`t. And that is the bigger issue because the world has begun to shift into a different geo-economic paradigm, to some extent.
An Emerging New Geoeconomic Paradigm
The Russian invasion of Ukraine in 2014 (remember? This didn`t just start last Feb) is considered the beginning of a new geoeconomic age. As a result of the sanctions the West placed on Russia in response, Russia`s natural gas shipments to Europe decreased, triggering an energy crisis. The widening gap between the West and a new bloc headed by China and Russia has also been underlined by this event. These events have sparked several significant knock-on events, predicted to influence the coming decade. With nations like China, Russia, Iran, and North Korea challenging the economic and geopolitical system put in place by the US and its allies after World War II (the Breton Woods system), protectionism and global realignment are two trends that are emerging. With a focus on reshoring and friendshoring and a decline in foreign investment in underdeveloped nations, the COVID-19 epidemic has further expedited this tendency.
Dealing with Russian companies has become more challenging as a result of the confrontation between the West and Russia, which has also spurred investment in land-based infrastructure at the expense of maritime trade. Land-based trade costs an order of magnitude more than maritime trade. Stagflation and greenflation (inflation generated by inefficient spending to comply with climate dictates) are two further trends that have emerged as a result of the global economic recession, which has resulted in higher prices and sluggish economic growth. Along with this, environmental, social, and governance (ESG) issues are becoming more significant and are anticipated to influence investment choices in the upcoming years. Along with supply chains becoming more regionalized and the significance of multinational organizations waning, there is a very strong (and predicted) movement away from globalization.
Last but not least, there is a tendency toward privatizing security, with a growth in the privatization of military and security services and a blending of the public and private sectors` involvement in security. These tendencies can be viewed as a sort of counter-move to globalism, which has arguably put global prosperity on steroids for the last 70 years. Although this development has been extremely profitable for nearly everyone on earth, markets are still markets, and, as such must move in discrete stair-steps, not conveyor belt smoothness. But we can also use such movements to our advantage if we can see them coming, and that is our intent.
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