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May 8, 2024

GP's Setting Their Own Marks is a Bad Idea

GP's Setting Their Own Marks is a Bad Idea

Yesterday a bombshell story was published about BREIT. The article, (, is entitled "Blackstone's Big Gamble." It is about Blackstone 's Real Estate fund where you can get periodic liquidity. You may recall they had difficulty meeting monthly redemptions and this caused major difficulties.

Their investors fundamentally did not believe the marks on the underlying assets and ran for the door at the price they were offering. At the time this was a $70 billion portfolio that said it was up 7% for the most recent period while the broader market was down 25%. For a $70 billion portfolio to outperform the market by 3200 basis points would be spectacular indeed in a rising interest rate environment with a challenging fundamental market for CRE. Investors suspected that the GP who was setting the marks on their own assets had succumbed to a near occasion of optimism. So in the most basic form of market function they tried to sell high, to the tune of $4.5 billion seeking to sell in a single month. So as GP, the folks at Blackstone, gated the fund (or limited redemptions) and had other folks bail them out, including the University of California who invested $4 billion. This came with a guarantee to hit a minimum return or Blackstone would provide an incremental $1 billion of their own shares ( this is broadly the price of the overall market.

Two weeks ago we signed an agreement with a new UK firm building automatic market making functions for real world assets, with a focus on Real Estate. They are building on our software and we are helping them launch. Their product will have third parties setting marks for interval funds monthly with a daily AVM, and this will allow daily subscriptions and weekly redemptions with all source data for the models anchored on chain with zero knowledge proofs.

GP's setting marks on their own portfolios is going away, for the reasons noted above. I am not suggesting any wrongdoing in any way, it is just a bad idea to have GP's setting their own marks. We no longer need to have all the data in one data base with normalized data to process the data, instead through a Federated data architecture we can process that data at scale. This opens the door for automated processing of data using the newest tools like AI, ML, RPA, and trust is commuted in source data using distributed ledger technology. This is how alternatives will trade digitally, with price discovery and trusted data.

We need GP's like Blackstone to manage money and find alpha through asset selection and management, but not administration and pricing of their fund.

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