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https://www.bloomberg.com/news/articles/2024-05-23/starwood-reit-sets-drastic-redemption-limits-on-liquidity-crunch

Starwood’s $10 Billion REIT Tightens Redemption Limits to Ease Liquidity Crunch

New restrictions are expected to last six months to a year
Sternlicht’s Starwood will reduce its management fees

Starwood Real Estate Income Trust, a $10 billion fund managed by Barry Sternlicht’s Starwood Capital Group, is taking a drastic step to preserve liquidity by imposing tighter limits on investors’ ability to pull money.

The vehicle, known as SREIT, will cap monthly redemptions at 0.33% of its net asset value, and 1% a quarter, according to a filing Thursday. Previously, the trust allowed withdrawals of up to 2% of net asset value in a given month, and 5% a quarter.

The new restrictions will likely last six months to a year and are viewed by executives as preferable to selling assets at discounted prices, according to a shareholder letter. Starwood Capital Group will reduce its management fees as long as the new limits are in place.

“As a fiduciary to our stockholders, we cannot recommend being an aggressive seller of real estate assets today given what we believe to be a near-bottom market with limited transaction volumes, and our belief that the real estate markets will improve,” Sternlicht and SREIT Chief Executive Officer Sean Harris said in a letter to shareholders.

The move is the latest indication that higher-for-longer interest rates are causing cracks in the commercial-property market. SREIT and competitors including Blackstone Real Estate Income Trust faced rising pressure in the second of half of 2022 when investors began requesting more money back, causing the vehicles to enforce previously disclosed limits.

In October 2022, SREIT’s redemption requests exceeded the 2% threshold but all those requests were fulfilled, with the trust leaving some requests unmet a month later.

Redemption pressure eased at the end of last year when it appeared the Federal Reserve was getting ready to cut interest rates. Shareholders requested just $314 million in December 2023, down from a peak of $715 million in January of that year.

But with the economy roaring, policymakers started warning that rate cuts might not happen as soon as previously forecast, complicating the outlook for real estate.

“This was a very hard decision to make, but having managed through six major downturns over our 30-year history, we believe we are making the best decision for all shareholders,” Sternlicht said in an emailed statement. “We anticipate the real estate markets are bottoming and will continue to improve from here, so further leveraging the vehicle or selling our portfolio’s assets to meet monthly redemptions would negatively impact all investors.”

Starwood’s trust has continued to face outflow pressure. In April, shareholders requested $518 million in redemptions. The fund paid out just about $192 million.

SREIT had $752 million in liquidity at the end of April, including $275 million in an undrawn credit line, according to the shareholder letter. With liquidity worsening, executives had to choose between selling assets, increasing borrowings or limiting redemptions.

https://www.cnbc.com/2024/05/21/stock-market-today-live-updates.html

Dow slides 300 points as Fed meeting minutes show inflation worries

U.S. stocks traded lower Wednesday as the minutes from the Federal Reserve’s May meeting raised concerns of persistent inflation, indicating the central bank may not cut interest rates soon.(...)

https://www.ft.com/content/23fab126-f1d3-4add-a457-207a25730ad9

Meta AI chief says large language models will not reach human intelligence

Yann LeCun argues current AI methods are flawed as he pushes for ‘world modelling’ vision for superintelligence

Meta’s artificial intelligence chief said the large language models that power generative AI products such as ChatGPT would never achieve the ability to reason and plan like humans, as he focused instead on a radical alternative approach to create “superintelligence” in machines.

Yann LeCun, chief AI scientist at the social media giant that owns Facebook and Instagram, said LLMs had “very limited understanding of logic . . . do not understand the physical world, do not have persistent memory, cannot reason in any reasonable definition of the term and cannot plan . . . hierarchically”.

In an interview with the Financial Times, he argued against relying on advancing LLMs in the quest to make human-level intelligence, as these models can only answer prompts accurately if they have been fed the right training data and are, therefore, “intrinsically unsafe”.

Instead, he is working to develop an entirely new generation of AI systems that he hopes will power machines with human-level intelligence, although he said this vision could take 10 years to achieve.

Meta has been pouring billions of dollars into developing its own LLMs as generative AI has exploded, aiming to catch up with rival tech groups, including Microsoft-backed OpenAI and Alphabet’s Google.

LeCun runs a team of about 500 staff at Meta’s Fundamental AI Research (Fair) lab. They are working towards creating AI that can develop common sense and learn how the world works in similar ways to humans, in an approach known as “world modelling”.

The Meta AI chief’s experimental vision is a potentially risky and costly gamble for the social media group at a time when investors are itching to see quick returns on AI investments.

Last month, Meta lost nearly $200bn in value when chief executive Mark Zuckerberg vowed to increase spending and turn the social media group into “the leading AI company in the world”, spooking Wall Street investors concerned about rising costs with little immediate revenue potential.

“We are at the point where we think we are on the cusp of maybe the next generation AI systems,” LeCun said.

LeCun’s comments come as Meta and its rivals push forward with ever more enhanced LLMs. Figures such as OpenAI chief Sam Altman believe they provide a vital step towards creating artificial general intelligence (AGI) — the point when machines have greater cognitive capabilities than humans.

OpenAI last week released its new faster GPT-4o model, and Google unveiled a new “multimodal” artificial intelligence agent that can answer real-time queries across video, audio and text called Project Astra, powered by an upgraded version of its Gemini model.

Meta also launched its new Llama 3 model last month. The company’s global affairs head Sir Nick Clegg said its latest LLM had “vastly improved capabilities like reasoning” — the ability to apply logic to queries. For example, the system would surmise that a person suffering from a headache, sore throat and runny nose had a cold, but could also recognise that allergies might be causing the symptoms.

However, LeCun said this evolution of LLMs was superficial and limited, with the models learning only when human engineers intervene to train it on that information, rather than AI coming to a conclusion organically like people.

“It certainly appears to most people as reasoning — but mostly it’s exploiting accumulated knowledge from lots of training data,” LeCun said, but added: “[LLMs] are very useful despite their limitations.”

Google DeepMind has also spent several years pursuing alternative methods to building AGI, including methods such as reinforcement learning, where AI agents learn from their surroundings in a game-like virtual environment.

At an event in London on Tuesday, DeepMind’s chief Sir Demis Hassabis said what was missing from language models was “they didn’t understand the spatial context you’re in . . . so that limits their usefulness in the end”.

Meta set up its Fair lab in 2013 to pioneer AI research, hiring leading academics in the space.

However, in early 2023, Meta created a new GenAI team, headed by chief product officer Chris Cox. It poached many AI researchers and engineers from Fair, and led the work on Llama 3 and integrated it into products, such as its new AI assistants and image-generation tools.

The creation of the GenAI team came as some insiders argued that an academic culture within the Fair lab was partly to blame for Meta’s late arrival to the generative AI boom. Zuckerberg has pushed for more commercial applications of AI under pressure from investors.

However, LeCun has remained one of Zuckerberg’s core advisers, according to people close to the company, due to his record and reputation as one of the founding fathers of AI, winning a Turing Award for his work on neural networks.

“We’ve refocused Fair towards the longer-term goal of human-level AI, essentially because GenAI now is focused on the stuff that we have a clear path towards,” LeCun said.

“[Achieving AGI] not a product design problem, it’s not even a technology development problem, it’s very much a scientific problem,” he added.

LeCun first published a paper on his world modelling vision in 2022 and Meta has since released two research models based on the approach.

Today, he said Fair was testing different ideas to achieve human-level intelligence because “there’s a lot of uncertainty and exploration in this, [so] we can’t tell which one will succeed or end up being picked up”.

Among these, LeCun’s team is feeding systems with hours of video and deliberately leaving out frames, then getting the AI to predict what will happen next. This is to mimic how children learn from passively observing the world around them.

He also said Fair was exploring building “a universal text encoding system” that would allow a system to process abstract representations of knowledge in text, which can then be applied to video and audio.

Some experts are doubtful of whether LeCun’s vision is viable.

Aron Culotta, associate professor of computer science at Tulane University, said common sense had long been “a thorn in the side of AI”, and that it was challenging to teach models causality, leaving them “susceptible to these unexpected failures”.

One former Meta AI employee described the world modelling push as “vague fluff”, adding: “It feels like a lot of flag planting.”

Another current employee said Fair had yet to prove itself as a true rival to research groups such as DeepMind.

In the longer term, LeCun believes the technology will power AI agents that users can interact with through wearable technology, including augmented reality or “smart” glasses, and electromyography (EMG) “bracelets”.

“[For AI agents] to be really useful, they need to have something akin to human-level intelligence,” he said.

https://finance.yahoo.com/news/china-ramps-dollarization-efforts-dumping-040610198.html

China ramps up de-dollarization efforts by dumping a record amount of US bonds

*China sold a record $53.3 billion worth of Treasurys and agency bonds in the first-quarter, Bloomberg reported.

*It previously unloaded US debt to prop up its yuan, which has again grown weak against a rallying dollar.

*The country is piling into gold, which now makes up the highest share of its reserves since 2015.

China unloaded a record volume of US bonds in the first quarter, escalating the country's pivot from dollar-denominated assets.

According to US Treasury data cited by Bloomberg, Beijing sold $53.3 billion worth of US Treasury and agency bonds from its stockpile.

That's above already eye-catching volumes China was offloading last year. Altogether, one estimate has calculated that the country has sold $300 billion of US Treasurys between 2021 and mid-2023. China's selling grew to the point that markets worried about higher yields.

But now, China seems to be accelerating its step back, as trade relations seem unlikely to improve between Beijing and the US.

By last year, China was already discarding US debt to prop up its yuan, given considerable declines against the dollar. This could again be the case, as the greenback has rallied heavily on hawkish US monetary policy.

In fact, the US Dollar Index has reached as high as 4.9% year-to-date, while the yuan has only trailed lower. This has made imports into the country expensive and could be a trend that only gets worse: that's if rising US protectionism continues to prop up the greenback.

Most recently, that's as the Biden Administration has announced tariffs on a slew of advanced Chinese products, targeting everything from electric vehicles to batteries. Even if former President Donald Trump wins back the White House come November, he has promised to apply tariffs as high as 60% on Chinese imports.

To diversify from the dollar, Beijing is also diving harder into purchasing gold. Now, the metal makes up a 4.9% of Chinese reserves, the highest since at least 2015, Bloomberg said. It's a trend followed by other central banks as well, who have been snapping up bullion at record speeds.

But dollar strength isn't the only thing motivating these trends. China is also de-dollarizing its reserves as part of a broader movement to diversify global finance, and chip at dollar dominance.

Fear of US sanctions first triggered this pattern among central banks, after witnessing how the West applied dollar restrictions on Russia in 2022.

https://www.bloomberg.com/news/articles/2024-05-22/canada-pension-lowers-real-estate-exposure-after-offices-take-hit

Canada Pension Lowers Real Estate Exposure After Offices Take Hit

Higher rates, work-from-home trend result in real estate loss
The $463 billion fund posted strong gains in equities, credit

Canada Pension Plan Investment Board earned an 8% return in the fiscal year ended March, as double-digit gains in stocks, credit and private equity made up for weaker performance in emerging markets and real estate.

The fund recorded a 5% loss on its real estate holdings and blamed high interest rates and work-from-home trends that have damaged the value of office properties globally.

“Most of the losses were in the office sector, given the additional impact of changes in workplace trends,” it said in its annual report. The country’s largest pension manager again reduced its exposure to property to about 8% of total assets as of March 31, down from 9% a year earlier. Five years ago, it was 12%.

Canada’s biggest pension funds have been major owners of real estate, including prime office towers, for decades, but some are now adjusting their strategies. CPPIB has recently sold its interests in a pair of Vancouver towers, a business park in Southern California and a redevelopment project in Manhattan, with the latter offloaded for just $1 so the fund could shed its future obligations on the property.

Overall, CPPIB grew to C$632 billion ($463 billion) in assets from C$570 billion a year earlier.

“The CPP Fund’s growth this year continued the trend of reaching heights several years ahead of initial actuarial projections,” Chief Executive Officer John Graham said in a statement Wednesday. “Solid performance by all of the investment departments and key corporate functions helps demonstrate how our strategy is on track.”

The fund’s holdings of public stocks and private equity climbed 13.8% and 10.4%, respectively, while its credit portfolio gained 10.8%.

The Toronto-based pension fund has been active in dealmaking since the start of 2024. Earlier this month, it agreed to buy utility owner Allete Inc. for about $3.9 billion in partnership with Global Infrastructure Partners.

It also sold shares in the debut of cruise operator Viking Holdings and is among the investors seeking to raise around $1 billion for the initial public offering of health-care software company Waystar Holding Corp., Bloomberg reported.

While CPPIB has mostly stuck to its China strategy, it eliminated about a dozen positions in its Greater China public equities team recently, representing close to 10% of its Hong Kong staff, according to a report by Bloomberg.

CPPIB is expected to reach C$1 trillion in assets around 2030. Executives are expanding its private lending business, with with plans to nearly double the size of its credit holdings over the next five years.

Desde luego que en Argentina está funcionando la Reserva Federal de EEUU como proveedora de la moneda en la que ahorran los argentinos y con la que especulan contra la suya propia para ganar al consumir y pagar impuestos.

Contaré una anécdota de hace pocos meses, justo antes de las elecciones que ganó Milei. Tuve que efectuar una reserva en un hotel de lujo en Buenos Aires (no para mí, obviamente) y para formalizar la reserva directamente te facilitan una cuenta bancaria de un banco estadounidense en Nueva York y un importe en dólares con su equivalente en pesos.

Posteriormente, una vez terminada la estancia y solicitada la correspondiente factura, el importe de la misma estaba en pesos...al cambio del día de emisión de la factura. Lógicamente no coincidía con el importe en pesos del documento de reserva, que era mayor. Debe ser muy corriente allí.

https://www.ft.com/content/0368b541-d5ea-4043-91bd-13059d8e194a

Starwood’s woes betray the frailties of private capital vehicles

Spike in interest rates and office values crashing means property funds have rattled antsy holders

If you can’t get your money out, you better be sure your fund manager knows what they are doing.

Starwood Real Estate Investment Trust (Sreit), a non-traded US property landlord with $10bn in net assets, has had to tap credit lines to meet heavy redemption requests. Shareholders, largely comprised of wealthy individuals, tried to withdraw $1.5bn of shares from Sreit in the first quarter. 

Such private Reits usually do not allow more than 5 per cent of the fund’s net asset value to depart in a quarter. Blackstone’s similar $60bn vehicle, Breit, had to throw up its own gates last year.

The conceit of these vehicles is that holders trade near-term liquidity for better investing acumen over the long term. But the spike in interest rates and office values crashing means property funds have rattled antsy holders. Episodic redemption pressures, however, should not distract from the core issue of whether these structures can consistently grow shareholder value.

Non-traded Reits have faced criticism over internally set valuations, even those where third-party experts are used. NAVs for Breit and Sreit did not spike sharply in 2021 but held their value better than public benchmarks in 2022.



In the near-term, the funds need enough liquidity — between rents collected, debt raises and new shareholders buying equity — to fund both the typical 5 per cent dividend yield as well as permitted withdrawals. 

Longer term, net asset value has to rise through a combination of accretive new property projects combined with higher rents charged. Blackstone, for example, said the redemption pressure last year stemmed from Asian clients needing cash, not lost confidence in its investing chops: Breit’s office exposure is less than 5 per cent of its portfolio. It has emphasised life science facilities, data centres and warehouses. 

All the big alternative asset managers have made non-traded private capital vehicles marketed to retail investors the backbone of growth plans. They argue that individuals need private asset exposure, despite the fact that publicly traded Reits and business development companies invest in the same assets and can be freely sold at any time.

Perhaps long-term assets should not be marked daily in trading markets. But fund redemptions are set off net asset value so there is some check on inflated valuations.

Starwood, with its exposure to Sunbelt residential real estate, appears to have a liquidity crisis that might prevent it from selling emergency equity. Blackstone, on the other hand, inspired enough confidence last year to raise some expensive funding from the University of California.

That cash is merely a bridge, however, buying more time for private equity’s titans to demonstrate they are competent in managing the money of the masses.