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Calpers Cutting Ties With More Managers, Still Refusing To Lay Blame On Itself
Following last night's surprising disclosure that Calpers is reviewing its relationship with PE giant Apollo, which over the years has been among the biggest beneficiaries of Calpers' generosity, the California pension system today is really taking the scythe to its money managers. And while Calpers (and, of course, Apollo) would have you believe that the PE firm's review is just ordinary course of business, the people who buy that explanation are likely the same who are buying Amazon stock at its all time high levels. Adding fuel to the speculative fire that Apollo may soon be out in the cold, is today's announcement that Calpers has just severed ties with long-time partner MacFarlane Partners.
The California Public Employees’
Retirement System, the biggest U.S. pension fund, and real
estate adviser MacFarlane Partners severed ties as the fund
reviews the performance of its investment managers.
MacFarlane Partners, the real estate firm that helped
Calpers invest in affordable housing, resigned as manager of
California Urban Investment Partners LLC, Julie Chase, an
outside spokeswoman for San Francisco-based MacFarlane, said
yesterday. Calpers accepted the decision, she said.
MacFarlane had success as one of 13 developers that
invested Calpers money into affordable housing and commercial
and retail properties in city-center neighborhoods, mostly in
California. The program earned 20.2 percent on a $1.2 billion
investment from 1997 to 2005, according to the Calpers
investment committee.
Judging by MacFarlane recent track advisory and loss-generating record, the move is hardly surprising:
MacFarlane helped the pension fund pay $970 million in
cash and property to Lennar Corp for a stake in LandSource
Communities Development LLC in January 2007. The 15,000-acre
(6,000-hectare) tract north of Los Angeles, known as Newhall
Ranch, filed for Chapter 11 bankruptcy protection in June 2008
after failing to restructure debt.
The duo's most recent investment: $859 million in New York's AOL Time Warner Center, whose Central Park views were strategically hijacked subsequently by one Donald J. Trump.
Yet one wonders when finally Calpers will finally point the finger at the real culprit for its horrendous investment decisions: itself.
Calpers lost 23 percent of its value in the 12 months
ended June 30 as the worst recession since the Great Depression
wiped out six years of earnings and produced the worst year
since the pension fund was created in 1932. The fund’s property
investments declined by 35 percent.
“Calpers has had a lot of high-profile blowups, and it’s
been known that they were evaluating their external managers
with an eye toward paring them down,” said Barry Vinocur,
editor of Novato, California-based REIT Zone Publications.
“They’ve made it clear that they would work with fewer
advisers.”
As Calpers is the lifeblood of America's PE industry (for an extended profile of Calpers' investment portfolio conducted by Zero Hedge, please see here), many PE heads are scrambling to smooth out any frayed relationships they may have with the nation's largest pension system. Yet, using what are still likely mark-to-myth valuations on equity stakes in a variety of near (or already) bankrupt companies will likely not incite Calpers to look too kindly upon those who abused the credit bubble and were unable to exit their investments in time. What is worse, any immediate redemptions will only force PE funds to scramble to satisfy needed liquidity, which in turn could result in some very aggressive portfolios hitting the market at Blue Light special prices. Ultimately, it will all depend on just how much political and social pressure Calpers is currently facing to finally set itself right, or to actually look inside its own organization and start handing out the pink slips.
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There are so many straws floating around it's hard to decide which one is going to break the camel's back ... first.
Before long ... we might not be able to find the camel for the straw.
Folks who have not sold into this market are very likely to be sorry later.
can't find the camel for all the straw. Love it. Good for a morning laugh.
... or the coffin for the nails!
Speaking of AMZN....I guess if I hated it at 90 I have to hate it even more at 117. SOLD!
I've YET to see a Kindle in my everyday travels....which are substantial.
Insanity.
title says it all - these guys running the pension fund did less due diligence than a Madoff feeder fund, and continued to overpay for real estate bets even as the recession continually worsened
Hey Calpers, I have a shiny cat turd that I'll sell you.
Hey Calpers, I have a shiny cat turd I'll sell to you cheap. They only go up.
As we near the end game, it's getting really interesting as the threads begin to unravel and the colors start to run.
While I have little need or respect for that most famous of all American investors "Average Joe" Warren Buffet, I do think one of his famous quotes is most appropriate here and now.
"It's only when the tide goes out that you learn who's been swimming naked."
perhaps calpers could reinvigorate its cre portfolio with a screaming shopping mall buy in oklahoma (oil pump and roylaties not included).
"It's only when the tide goes out that you learn who's been swimming naked."
Really, this has been one big nude beach, if you paid attention.
"It's only when the tide goes out that you learn who's been swimming naked."
Really, this has been one big nude beach, if you paid attention.
Tyler, Villalobos of Arvco Financial Ventures received 50 million over the last 5 years from Apollo. The BIG question is how much did Apollo get.
So for those of you not getting "it" - lets say Apollo got 60 million in fees but had to pay out 50 million to Arvco - it would kind of support the idea of "pay for play".
Oh and one more little tidbit.... guess where former CalPERS CEO Fred Buenrostro works?
Hey Tyler, a new question for you to ponder:
As I mentioned early, Villalobos received 50 million over the last 5 years from Apollo.
I just got this bit on info from the L.A. times:
"Placement agents generally are paid a fee of 1% to 2% of the value of deals by the private-equity investment firms. The agents rely on their sometimes long-term relationships with CalPERS and other pension systems to persuade officials to do business with their investment fund clients."
I've checked this on my Excel speadsheet but hey I screwup all the time. Please correct me if I'm wrong.... if 2%(50 million) represents fees paid that would mean that Apollo earned 2.5 billion dollars in fees from CalPERS.
What are the chances that Apollo earned 2.5 billion in fees from CalPERS's 200 billion dollar pension fund....
Kind of makes you think....
It's not 2.5 billion in fees that Apollo would have gotten, but 2.5 billion in capital commitments. And Calpers' website lists commitments and performance.
Great piece on Reuters today as well, on CALPERS
Just wrote about it, good timing - they are another too big to fail and they invest like it!
http://www.fundmymutualfund.com/2009/10/calpers-california-pension-plan-...
Tyler,
What about Guggenheim Fund? Here's an old Bloomberg link. Alas,the trail has gone cold.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ_2EYmCGDBs
And then there's Guggenheim.
Alas, the trail has gone cold.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ_2EYmCGDBs
You don't need due diligence -- you just need a paid bagholder, that you can fire when the losses roll in.
"It's not my fault! They did it!"
Having worked at two of the largest public pension funds in Canada, I can tell you that there is a lot of this stuff going on everywhere. It's really disappointing but that's the reality. That's why I insist on independent performance, operational and fraud audits on every investment with an external fund, especially those in private markets.
Someone should investigate how MacFarlane got selected in the first place -- hopefully not just looking for diversity.
And it is always hilarious when an investor like CalPERs who is constantly telling corporations how to govern themselves comes unglued and produces pathetic results. Guess their governance sucks.
There are so many conflicts on the CALPERS Board that it makes Enron look like an alter boy. A case of strong disinfectant/ investigation would go a long way--oh and guess who was on the Board--a player-- and now is heading up the new Pecora Commission? Mr Phil (insider at CALPERS) Angeliedes. Need a little digging there TD.
I agree, ZA. CalPers is the IED on the road to any recovery for CA. They have big " formerly conservative " bets in CRE. A shitload of insider dealing goes with the territory when there is that much money laying around just itching to chase a high yield.
A bonded prop for CalPers will really scatter the herd of CA taxpayers.