A Messi-merizing Debut

In his first match for Inter Miami, Messi did what he does best...scoring a spectacular game-winning freekick in the 95th minute against Mexican side Cruz Azul.

Regular Guy Messi

By now, we've all heard about the astonishing $1.6 billion (over three years) sum that Messi reportedly turned down from the Saudi League to join Inter Miami and MLS. Don't get us wrong, he's still getting paid a lot in Miami--$50-60 million per year for three years, including an ownership share of Inter Miami, as well as profit sharing with two of MLS’s biggest commercial partners, Apple and Adidas--just not tech mogul money. 

Well, Messi has arrived in the U.S. and Messi-mania has engulfed Miami. But this is still the U.S. which means not everyone will recognize Messi! And that's perhaps the ideal situation. Messi can work his magic and help transform the MLS on the field, while going about his day in relative peace off it. And so, we have this unlikely but endearing image of regular-guy Messi shopping for cereal at a local Publix!

Under Pressure: BREIT Redemptions Rise Again

When you hear the phrase non-traded REIT ("NTR"), most investors basically think of Blackstone's REIT ("BREIT"). BREIT is a $69 billion behemoth that makes up approximately 70% of the NTR market. Launched in 2015 and marketed to mostly high-net-worth ("HNW") individuals, BREIT contributes a whopping 17% to Blackstone's earnings (even though it makes up approximately 7% of its $991bn of AUM). 

It's popularity is not surprising, BREIT has generated 11.8% annualized net return and provided a 4.5% net yield. But Blackstone's crown jewel seems to be a victim of its own success...

NTRs invest in the largely the same types of stabilized commercial real estate properties that publicly traded REITs do. The crucial difference--as the name states--is that they are not traded on exchanges and have strict liquidity provisions that limit redemptions to 2% and 5% of net asset value ("NAV") per month and quarter, respectively. Which means they exhibit only a fraction of the volatility of public REITs, whose value tends to be driven as much, if not more, by market beta as real estate fundamentals. In 2022, REITs were down over 24%. By contrast, BREIT (Class I) was up 8.4%. Quite a bit of alpha? Or subjective marking of assets? Many investors felt the latter and saw an opportunity for a potential arbitrage--take profits by selling BREIT and invest the proceeds in beaten down public REITs.

As a consequence, BREIT has been facing massive redemption requests for the better part of three quarters. Chart A below shows monthly redemption requests and payouts by BREIT since October. There has been over $12 billion of redemption requests since 3Q22 and over $9 billion of payouts to investors. (Things were getting really desperate at one point before the University of California endowment stepped in with a $4 billion (structured) investment). However, after the first couple of months, BREIT's payout rate per month has fallen sharply and redemption requests (after pausing in December) have been steadily rising again.

Source: Reuters, Barron's, Mantabye

When redemption requests exceed the monthly and quarterly payout limits (2% and 5%, respectively), investor capital is returned on a pro rata basis and individuals need to keep resubmitting requests for the balance of their funds. We can back into new and existing (repeat) requests per month as shown in Chart B. What we see is that BREIT has paid out ~$6 billion in 2023 so far, but over the same period new requests to redeem capital has totaled over $5.4 billion.  Which means BREIT is barely staying ahead of new redemption requests. And since it has already provided liquidity close to 4% of NAV for the first two months of 2Q23, it can only provide about $900 million of liquidity in June, whereas the average redemption request rate is something like $1.5 billion per month, likely putting it further into the hole.

As of now, it is taking investors 8+ months to fully get their money out of BREIT. Many, if not most, thought they could get their money out in a month! To be fair, Blackstone's documents clearly state BREIT's liquidity provisions (that are designed to mitigate the type of forced selling common in public markets). Yeah, but who reads the prospectus? That's boring...and for nerds. People believed BREIT was the best of both worlds: access to the industry's premier private real estate platform with the liquidity (or almost) of public funds. And Blackstone was more than happy to let them believe. Well, now investors are unhappy and Blackstone stock is down 26% from last June. 

Oh, as for that deal with the University of California, it guarantees UC a 11.25% return per year with the difference to made up by Blackstone. YTD (through April) BREIT is down 0.33%. That's potentially $450 million less bonuses for Blackstone partners this year.

Orange is the New Trump

 

Former President Donald J. Trump was indicted by a Manhattan grand jury on 34 counts of election and business fraud. A spokesperson for Manhattan District Attorney Alvin Bragg said the office has contacted Trump's attorney to "coordinate his surrender" for arraignment on "a Supreme Court indictment, which remains under seal." Trump becomes the first ex-president to be charged with a crime. But he can still for President in 2024.

Mouring Edson Arantes do Nascimento (1940-2022), the King of Football

Brazilian football legend Pelé, widely considered one of the best players ever, if not the best, died yesterday after a year-long battle with colon cancer. He was 82 years old.

Brazil has planned 48 hours of national mourning. Pelé, is expected to be buried in Santos, southeast of Sao Paulo, where he played for the city's club from 1956 to 1974. Gianni Infantino, the president of FIFA, said in a statement Pelé's "life was about more than football. He changed perceptions for the better in Brazil, in South America and across the world." 

The UK's Guardian has a great piece on his career and how he came to be the face of football the world over. Pelé burst onto the world stage when he was just 17 scoring six goals to help Brazil win the 1958 World Cup in Sweden. He stole the show in the final which Brazil won over hosts Sweden, 5-2, with two goals that were "an illustration of the ability that set him apart from all other footballers. The first was a breathtaking piece of skill; he controlled the ball on his chest, chipped it back over his head and then ran around the flummoxed defender and volleyed it into the net. For the second, he soared above his marker before making a perfectly placed header." He is the only player to have won the World Cup three times (1958, 1962, and 1970).

"Pelé was blessed with a blend of supreme athleticism, skill and tactical vision...His sheer physicality and turn of speed were electrifying as he homed in on goal, outsprinting or simply charging through defences while managing to keep the ball under close control."  Those qualities made him a hot commodity as wealthy clubs attempted to lure him away from Brazil, offering a then unheard-of $1m to his club, Santos FC. But in 1961, Brazil's president Jânio Quadros "declared Pelé a 'non-exportable national treasure', ensuring that he remained at the club for almost two decades."

 It was at the 1970 World Cup, however, that Pelé truly became a global phenomenon. It was the first football tournament watched live by a worldwide television audience and also the first to be broadcast in color. "In the brilliant Mexican sunshine, the gold shirts and cobalt blue shorts of Brazil dazzled the watching world. They won the tournament for the third time – beating Italy 4-1 in the final – by playing football of such imagination and thrilling execution that it is regarded as one of the high-water marks in the history of sport...with Pelé [its] most potent symbol." After that World Cup he was the most recognizable man in sport.

In 1999 Pelé was named athlete of the century by the IOC and in 2000 FIFA player of the century (jointly with Diego Maradona). Pelé first two marriages ended in divorce. In 2016 he married his third wife, Marcia Cibele Aoki. She survives him, along with six children from prior relationships.

Felicidades Argentina!!! Campeona Del Mundo!!!

ARG (4) 3 - 3 (2) FRA 

Argentina edges out France on penalties.

The most thrilling World Cup final...in perhaps the best World Cup ever? So much drama, so much quality, and so many goals! Messi, Mbappe, and Martinez...a breathless, epic finish to a magnificent tournament. In the end, Argentina are World Champions for the third time!

  Relive the highlights here:

And the full drama of the penalties:

Oh, Elon: It's Funny Because its True

He's been trying for months...but finally lands a great Twitter joke.

Wonder if his backers are laughing as well..."Musk gathered over $7 billion in equity commitments from an unusual mix of investors, including Silicon Valley billionaire Larry Ellison, cryptocurrency exchange Binance, venture capital firms Andreessen Horowitz and Sequoia Capital...Text messages produced during the legal fight showed that co-investors did little analysis of their own, deferring instead to Musk. “If you are considering equity partners, my growth fund is in for $250M with no additional work required,” wrote Marc Andreessen." 

Investing with other people's money is so easy! Hahaha...Funny for everyone except Andreessen's investors.