Blackstone REIT restriction a warning sign for markets

LONDON: While there has been litle wider fallout from this week’s surge in redemption requests at an unlisted Blackstone real estate income trust (REIT), it is being read by some as a warning sign.

Blackstone limited withdrawals from its $69 billion unlisted REIT on Thursday ater redemption requests hit pre-set limits amid investor concerns it was slow to adjust valuations as interest rate surged, a source close to the fund said.

The development is yet another reminder of the risks facing not just sectors that are sensitive to higher interest rates but also broader financial markets, which have rallied sharply on hopes that interest rate hikes will slow.

“We have to be careful - rates have risen sharply and there will be a fallout for some asset classes,” Seema Shah, chief strategist at $500 billion asset manager Principal Global Investors, said of the potential pifalls ahead.

“REITS had a fantastic performance for a couple of months but when you have that outperformance, investors don’t react to traditional fundamental signals such as rising rates,” she said.

Big developed economies have raised rates by a combined 2,440 basis points in this monetary tightening cycle to date. This excludes Japan, which has kept rates at -0.1 per cent.

The U.S. Federal Reserve has raised its policy rate by 375 basis points this year to a 3.75 per cent-4.00 per cent range in the fastest ratehiking cycle since the 1980s in its inflation fight.

But in recent weeks expectations have risen that the Fed will “pivot” from aggressive tightening, prompting investors to price in lower peak interest rates.