Calpers Gambles, Loses - Again
Buying at the top a poor investment strategy.
Indeed, it appears even politicians are no longer sure this is a such good idea.
For evidence of just how well government-run bureaucracies manage vast pools of money, one need look no further than the nation's largest pension fund, the California Public Employees' Retirement System, or Calpers.
This June, a joint venture between the fund and a California developer filed for bankruptcy. Calpers had dumped almost $1 billion into raw land outside Los Angeles at the height of the real estate boom, which turned out to be kind of a bad idea: Calpers could lose its entire investment.
In late 2006, the fund made another equally ill-timed bet on highly speculative real estate.
Together with developer Tishman Spears, Calpers plunked down $500 million to buy the 80-acre swath of housing developments that make up Peter Cooper Village and Stuyvesant Town on Manhattan's east side. After much debate in New York about the fate of the developments -- whose thousands of units were formerly reserved for low-income renters -- MetLife sold the 56-building complex for $5.4 billion.
With the New York economy beginning to slow and property values showing cracks up and down Manhattan, Calpers may have yet again bought at the top.
According to the Wall Street Journal, the deal was financed with $4.4 billion in debt from Wachovia (WB) and Merrill Lynch (MER). Now, Standard and Poor's (MHP) has downgraded a portion of that debt connected with a $3 billion mortgage used to fund the project.
S&P is concerned not only about the 10% drop in the property's value, but also about whether rental cash flow and money generated from selling off individual units will be able to cover the debt service. Tishman, for its part, says cash flow is improving, and that credit markets have prematurely written an unhappy ending for the investment.
The continued inability of government-run investment funds to make good decisions is deeply unnerving, given the fact that bureaucrats could soon have their grubby little paws on a slush fund of unparalleled size.
Actionable ideas, instant analysis. Real-time from bell to bell.
Minyanville's Buzz & Banter - 14 day FREE trial
The information on this website solely reflects the analysis of or opin=
=3D =3D3D ion about the performance of securities and financial markets by =
the wr=3D iter=3D3D s whose articles appear on the site. The views expresse=
d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi=
a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web=
site is intended to con=3D stitute a recom=3D3D mendation or advice address=
ed to an individual investor =3D or category of inve=3D3D stors to purchase=
, sell or hold any security, or to =3D take any action with re=3D3D spect t=
o the prospective movement of the securit=3D ies markets or to solicit t=3D=
3D he purchase or sale of any security. Any inv=3D estment decisions must b=
e made =3D3D by the reader either individually or in =3D consultation with =
his or her invest=3D3D ment professional. Minyanville write=3D rs and staff=
may trade or hold position=3D3D s in securities that are discuss=3D ed in =
articles appearing on the website. Wr=3D3D iters of articles are requir=3D =
ed to disclose whether they have a position in =3D3D any stock or fund disc=
us=3D sed in an article, but are not permitted to disclos=3D3D e the size o=
r direct=3D ion of the position. Nothing on this website is intende=3D3D d =
to solicit bus=3D iness of any kind for a writer's business or fund. Mi=
ny=3D3D anville mana=3D gement and staff as well as contributing writers wi=
ll not respo=3D3D nd to em=3D ails or other communications requesting inves=
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter