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
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
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.