The manager of the University of California’s public pension fund agreed to a venture investing $4 billion in Blackstone Real Estate Income Trust, one of the world’s largest real estate owners, a major endorsement for Blackstone Group as the private equity giant works to quell investors’ anxiety over a rush of dollars pulled from the nontraded Blackstone REIT.

To land one of its biggest one-time real estate investments, New York-based Blackstone Group turned to an old partner, the Office of the Chief Investment Officer of the Regents of the University of California, commonly referred to as UC Investments. The fund, with about $152 billion of total assets, is expected to buy Blackstone REIT’s Class I common shares, its largest existing share class.

The details of the deal are unique in the world of multibillion-dollar institutional investing. In support of generating a positive return on that investment, Blackstone Group plans to contribute $1 billion of the Blackstone REIT shares that it owns as part of the venture with Oakland, California-based UC Investments.

The $4 billion investment in Blackstone REIT Class I shares is likely to be the largest investment in those shares by a single institutional investor, according to CoStar research and industry executives. Blackstone Group declined to comment to CoStar News.

The cash infusion is expected to help shore up Blackstone REIT’s liquidity following a surge of calls this past fall by investors wanting get out of the fund while bolstering confidence, according to Mitch Rosen, managing director and head of real estate at Yieldstreet, an alternative investments firm with more than $3 billion in assets. Yieldstreet provides retail investors with access to private markets, such as real estate, previously reserved only for institutional investors and the wealthy.

“I think this puts a lot of the broader market skepticism to bed for now, just to show that Blackstone can get an institutional quality investor such as the University of California to make a commitment of that size. It’s a massive check,” Rosen said in an interview.

In November, Blackstone Group said calls to redeem shares surpassed Blackstone REIT’s quarterly limit on redemptions of 5% of net asset value. The fund had to begin limiting redemptions. While it met redemption calls in the third quarter, Blackstone REIT allowed investors to withdraw only $1.3 billion in November. That represented about 43% of the redemption requests it received.

Blackstone CEO Stephen Schwarzman also reminded investors publicly at a Goldman Sachs investor conference that Blackstone REIT’s holdings had an average return of 13% a year. He said redemptions were “preponderantly coming from Asia,” where Hong Kong’s Hang Seng stock index registered lows not seen in about a decade.

“Blackstone is committed to bringing the highest quality alternative investment products to individual investors to improve their returns. UC Investments’ $4 billion investment is validation of this strategy,” Schwarzman said in a statement about the new venture. “UC Investments’ commitment builds upon its 15-year partnership with Blackstone and gives BREIT increased balance sheet flexibility and capital during an opportune deployment period for all our investors.”

Jagdeep Singh Bachher, the University of California’s chief investment officer, said UC Investments will benefit from Blackstone REIT’s stable cash-flowing investments that can grow with high global inflation, one of the main concerns of the real estate industry going into 2023.

Blackstone REIT reported holding nearly $118 billion in real estate investments as of Nov. 30, with approximately 80% concentrated in rental housing and industrial properties, sectors where fundamentals are historically strong, and 71% concentrated in the Sun Belt, which is experiencing higher job and population growth than the national average.

“We consider BREIT to be one of the best positioned, large-scale real estate portfolios in the U.S., managed by one of the world’s top real estate investors,” Bachher said in a statement. “This investment should provide UC Investments’ clients with a well-diversified real estate portfolio.”

UC Investments has already invested $2 billion across multiple Blackstone Group private equity, alternative investment and real estate funds for more than a decade and has a deep working relationship across the entire firm. As of June 30, UC Investments said its largest investment holdings were through its UC pension fund, which held $820 million of investments in Blackstone Group’s real estate funds — none of it in Blackstone REIT.

Blackstone Group and UC Investments have entered into a separate strategic agreement that provides for how and when UC Investments will receive a return on its money.

As part of the deal, Blackstone Group will contribute $1 billion of its current shareholdings in Blackstone REIT to help support but not guarantee an 11.25% minimum annualized net return for UC Investments over the effective six-year hold period, according to the statement.

In exchange, Blackstone Group will be entitled to receive a 5% cash payment from UC Investments on any returns received in excess of the specified minimum.

“We haven’t seen that kind of structure before,” Kevin Gannon, chairman and CEO of Stanger Investment Banking, told CoStar News. “Blackstone is putting their money where their mouth is on expectations for Blackstone REIT. We think it’s interesting, innovative and it shows a lot of confidence by Blackstone.”

Blackstone REIT Class I shares have generated a 12.7% annualized net return since inception six years ago, according to Blackstone Group.

UC Investments’ co-heads of real estate, Senior Managing Director Satish Swamy and Chief Operating Officer Arthur R. Guimarães, will oversee the venture.