Donations to the campaign against a California rent control proposition by some of Blackstone Group LP's real estate portfolio companies highlighted limited partner policies on manager-related political donations — and investors' limited role in decisions to make these donations.
The proposition, rejected by voters in last week's midterm elections, would have allowed California cities and counties to enact rent control, including restricting rent increases when a landlord rents to a new tenant.
According to California Secretary of State Alex Padilla's website, Blackstone Property Partners LP, an open-end fund; BREIT MF Holdings LLC, a non-traded real estate investment trust; three Blackstone Real Estate Partners funds — Funds VI through VIII and their holdings — were the second-largest contributor to the "No on Proposition 10" campaign. Combined, the group donated $5 million, filings show. Another Blackstone portfolio company, Invitation Homes Inc., which owns single-family homes for rent, is the 10th largest contributor with a $1.3 million donation.
Limited partners are rarely informed about political donations, which are seen by general partners as business decisions made by portfolio companies. But there are limits in the form of investors' policies to prevent managers from using political donations to sway investment decisions.
"Most LPs don't know that the political contributions from portfolio companies is happening and, given the construct of the limited partnership agreement, have no control over it," said David Fann, New York-based president and CEO of private equity consultant TorreyCove Capital Partners LLC.
Even so, managers are respecting limitations imposed by many investors in the form of policies to prevent managers from using political donations to sway investment decisions.
"We are aware that many investment firms are active in various political matters nationally and outside our state," said Charles Wollmann, spokesman for the New Mexico State Investment Council, Santa Fe, which oversees $24.7 billion in endowments and is an investor in Blackstone real estate funds. "While we generally won't view that as a positive factor, we also understand it's a fairly common business strategy for many managers. These concerns only become material in our decision-making process when such strategies directly impact politics in our state, or negatively affect our investments."
New Mexico State Investment Council created a policy in 2009 requiring managers to agree not to make political or charitable contributions ... or any other monetary or other benefits conferred, to or on any members of the SIC (State Investment Council) or any of its committees.