Turns out (1) University of California gets to gamble with – presumably students’? – money, and (2) Blackstone casually “guarantees” an 11.25% annualized return on investment for 6 years

CategoriesIssue Jan'23, Site Updates & News_, World Finance News_

The value of the deal is $4B with a B, US dollars. And it has been publicized today, Jan 3rd 2023.

A few questions arise. Firstly, where did the $4B come from? ucod.edu says:

Each of the ten UC campuses has an associated Campus Foundation that is a separately incorporated California non-profit public benefit corporation.
So a non-profit entity accumulated $4B, okay. Then they decided to gamble with it, rather than reducing costs for participants or improving equipment or funding research. Maybe I didn’t read a footnote in the definition of 501(c)(3) that said, the meaning of “non-profit” is that you have to be creative about withdrawing or using the accumulated funds.
Secondly, the risk-free rate right now is about 4.4% and every money market fund is putting funds into shorter term instruments. Compare and contrast that with Blackstone’s “guarantee” of a 11.25% annualized return for 6(!) years. Compare and contrast that with average stock market return for all of history: ~ 12%.
Thirdly, since we are in the beginning of a real-estate de-valuation and/or bubble pop, the timing of the deal raises no suspicion. The capital injection goes into Blackstone’s REITs, which is real estate. California real estate is already 10% down from recent highs and positioned to go lower. It’s only natural to negotiate a little capital injection from a non-profit into a real estate asset manager.

Data is from: https://tradingeconomics.com/united-states/existing-home-sales
If not now – when? /s
Forthly… Why doesn’t University of California system just stop intaking new students, teaching, or doing research? Why doesn’t it just manage a portfolio of real estate? They are already half-way there.
~ * ~ * ~ * ~
University of California operated with a $44B budget last year, approximately, estimated.
The budget figure is from https://www.ucop.edu/operating-budget/_files/rbudget/2022-23-budget-detail.pdf , page 191.
I guess they can file this under either “Institutional Support” because that’s what it really is, or the blanket “other activities”. If they just double expenditures of both lineitems, I’m sure it will be barely noticable.
And in any case, the federal (!) government only needs to increase their support of this non-profit by 116% , and the investment into the Blackstone REIT would be a pass-through, an after-thought.
Disclaimers:
  • I’m not affiliated with University of California or Blackstone
References:
  • https://www.reuters.com/business/finance/university-california-invest-4-bln-blackstones-reit-2023-01-03/

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