I work as a Valuations Research Analyst and I provide valuations for clients invested in Private Funds (like Hedge Funds, Trusts, REITS, etc). I am given exclusive access to financial statements, underlying holdings, fund structures and future plans for these funds. Everyone from Blackrock to no-name funds.

About 70% of these funds are all invested in US treasury bonds–the same stuff SVB was invested in. About 90% of the purchases are from 2020/2021 when rates were low and money was everywhere making their investments worth dog shit now. We’ve started providing valuation for 2022 and roughly 75% of these funds we’ve seen so far are down big. These are funds that have double the capital/assets than SVB and today, I saw a fund down 82% and now refusing redemption provisions. The losses are getting progressively worse.

I’m unsure if this will make news or not since they are “private” but judging by how the Fed handled SVB and the other banks, I wouldn’t be surprised if these fund owners are pushing to socialize their losses too.

To be clear, I say losses because nearly every client I’ve dealt with so far have demanded to see what the redemption provisions are the second we get the funds audited financial statements for 2022. Even though this in the final report, the inquiry about it before the final report is a big fat red flag that essentially tells us that the clients are trying to pull their investments from the fund. This inquiry has gotten out of control prompting us to inform clients after they fill the form out that they’ll get this information once the report is done.

Since most of these funds are invested in US treasury bonds from 2020/2021, they would have to sell these assets for a massive loss in order to fulfill redemption (withdrawal) requests. In doing so, they sell at a massive loss crippling the fund. So, to prevent this, many of these hedge funds, reits, trust, etc are all starting to deny redemptions screwing tons of these investors. Some of these funds have 4-5 clients so as you can imagine, once one person redeems their shares, everyone else will too and we’re slowly seeing more and more funds denying redemptions entirely which will only go on for so long before it becomes a big fat problem for the fed to “deal” with.

Take a wild guess who owns the most US Treasury Bonds from 2020/2021?

Blackrock, they own $26 billion here’s proof:

To determine the net loss for every fund we’ve seen this year, we took every client who has e-mailed us inquiring about the redemptions provisions and assumed they are attempting to withdrawal from the fund. Knowing how much they’ve invested in the fund and how much the fund is worth based on their investments, we can determine the the net loss each individual fund will experience trying to fulfill withdrawal requests.

So far, $622 billion in losses.

Here’s a good example on BlackStone. https://www.reuters.com/business/blackstone-real-estate-income-trust-hit-monthly-redemption-limit-january-2023-02-01/

later post,

For those that don’t know, Private Funds are getting absolutely decimated by fed rates and investors withdrawing their money. These funds are now starting to lock redemptions like BlackStone. Some of these funds have twice as much capital as SVB like BlackRock for example who owns $26 billion worth of US treasury bonds–the same securities SVB owned from 2021. This doesn’t include 2020 or 2022 either. I provided proof earlier, not doing it again.

So, why is this a problem?

Well, these clients aren’t always individuals. They are either other funds or organizations who depend on these investments. Most understand what is going on and we’re seeing (what we think) is a bank run on steroids but for private funds and since most of these funds are invested in US Treasury bonds from 2020/2021 (or earlier), they are now worthless because of rates and in order to fulfill withdrawals, they’ll need to sell at a loss–same thing SVB did.

So far, my co-worker and I did the math and we’re looking at $622 billion dollars in potential losses for these funds. We’re only three months into 2022 and already seeing more money than SVB lost. We’ve seen triple the amount of valuation orders compared to last year and we haven’t even hit busy season yet (June) which I suspect will be a violent moment for the markets. The most noteable event from all this is the sheer panic from clients wanting to know the redemption provisions (to see if they have changed). Pinging us to tell them that once we get the audited financial statements is a red flag to us that they are trying to withdrawal their investment from the fund and we’ve had over 500 people inquire about this since the start of the year. They all know the fund’s value has gone to shit, they just want their money back.