Tags: Private Equity

Teachers’ Retirement Funds are Piling into Manhattan Real Estate at Record High Prices

Screen Shot 2015-01-28 at 11.55.34 AMRather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities. The venture between the two companies, which manage teachers’ savings in their respective countries, is 51 percent owned by TIAA-CREF and 49 percent held by Seoul-based KTCU.

“You invest in a huge office tower in New York because you want a safe place to put your money and a decent return,” over the long-term, he said. “This is more a capital preservation play than it is a capital appreciation play.”

– From the Bloomberg article: Manhattan Towers Lure Koreans in $1 Billion Joint Venture

As soon as I woke up this morning, I saw an email from a very smart friend of mine in the finance industry. He forwarded me an article from the New York Post, about how TIAA-CREF had paid $3,158 per square foot for a building in the Meatpacking area of Manhattan (a record for the area), which isn’t far from where I lived for several years in the mid-2000s.

For those of you who aren’t aware, TIAA-CREF stands for Teachers Insurance and Annuity Association – College Retirement Equities Fund. According to the company’s own website, it:

We specialize in the distinctive needs of those who work in the academic, research, medical and cultural fields. We’re here to listen to you, to advise you, and to help you feel confident about making financial decisions.

So it essentially manages the investments of people who know the least about investing, i.e., muppets. As such, it came as no surprise that TIAA-CREF might serve as an important bag-holding vehicle for bubble assets just before a fall, tempted by juicy 4% yields. As my friend noted: “In other words, teachers and nurses are shattering property records to fund their retirement.”

Here are some excerpts from the article:

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Another Pension Scandal – The Crony Love Affair Between North Carolina, Credit Suisse and Erskine Bowles

Screen Shot 2014-10-22 at 11.38.33 AMIn North Carolina, managing the retirement savings of teachers, police officers, firefighters and other public employees is big business. As the sole fiduciary of the state’s $90 billion pension fund, Treasurer Cowell, a Democrat, was recently named the world’s 18th most important institutional investor by the Sovereign Wealth Fund Institute. The State Employees Association of North Carolina (Seanc) estimates that North Carolina is on track to spend a billion dollars a year of retirees’ pension money on fees to private financial firms. Roughly half of all North Carolina pension deals involve placement agents, and Seanc estimates that has generated roughly $180 million in placement agent fees — costs that are effectively paid by the pension fund, according to critics.

Credit Suisse’s own internal regulations say the company aims to “establish a management organization that avoids the creation or appearance of conflicts of interests.” But the North Carolina agreement (the provisions of which were secret until Seanc’s open records request earlier this year) explicitly allows Credit Suisse to engage in “actual and potential conflicts of interest.” The agreement noted Credit Suisse could receive “placement fees” from the firms in which it invests North Carolina pension money.

– From David Sirota’s excellent piece in Investors Business DailyPension Deal Spotlights ‘Placement Agent’ Business, Raises Conflict-Of-Interest Questions

When it comes to how the U.S. economy of fraud functions in 2014, the following article has it all. A government official, a global investment bank and a businessman/politician, all working together to enrich themselves at the public’s expense. It demonstrates how big bucks are really earned by insiders in the new American Dream, characterized by extreme cronyism and corruption.

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Quote of the Day from K.K.R. – Wall Street Officially Becomes a Parody of Itself

Screen Shot 2014-10-20 at 2.18.48 PMLongtime readers of Liberty Blitzkrieg will know that I think the greatest parody of Wall Street ever created is courtesy of SNL about a made-up firm called Global Century Investments. Before I provide a link to the video, I want to highlight a stunning quote from Gretchen Morgenson’s excellent New York Times article detailing the extraordinarily shady relationships between private equity firms and public pension funds. The quote comes in at the end of the article:

Kristi Huller, a spokeswoman for K.K.R., initially denied that it could reduce or eliminate its fiduciary duties. But after being presented with an excerpt from the agreement, she acknowledged that its language allowed “a modification of our fiduciary duties.”

What K.R.R. spokeswoman Kristi Huller does is straight up lie about the firm’s fiduciary duties, only to backtrack once she realizes she has been caught.

That is exactly what happens at the end of the SNL spoof. Yes it’s official, Wall Street has become a literal parody of itself.

Watch the video here and compare it to the quote above. Remarkable.

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U.S. Vacancy Rate Rises for First Time Since 2009 in Wake of Apartment Building Construction Surge

Screen Shot 2014-10-02 at 12.25.50 PMThis is an interesting headline, and one that anyone paying attention to the domestic real estate market should pay close attention to. We know that millennials aren’t the ones buying new homes in America (that market has been cornered by private equity and hedge funds as well as foreigners laundering suspect money), but those millennials who do posses the cash flow to move out on their own definitely appear to be renting. Due to this trend of renting as opposed to buying by average citizens, there has been an enormous construction boom of apartment complexes across the U.S.

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“Dead Broke” – Meet the Clintons’ $100,000 3-Week Hampton Rental

If being “dead broke” means dropping $100k on a 3-week rental in the Hamptons, then I’d like to be dead broke too.

In case you aren’t aware of what I’m referring to, recall that:

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UltraLong Bond Madness – Issuance of Debt with 30 Year+ Maturity Soars 22% in 2014

Screen Shot 2014-08-06 at 11.54.44 AMYesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation.

Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!

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Connecticut Man Arrested for “Passive Aggressive” Behavior to a Watermelon

Screen Shot 2014-07-17 at 1.16.25 PMAs is typically the case with posts on Liberty Blitzkrieg, the reason for highlighting this story is to see it in the context of other cultural trends happening within society. One of my biggest themes in 2014 has to do with the aggressive manner in which “authorities” relentlessly pursue average citizens for the most insignificant of infractions, while the most dastardly and destructive of criminals (financial oligarchs and others) receive, at worst, a slap on the wrist. Some of the more egregious examples of this behavior can be found below:

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Meet Janet Cowell – The North Carolina Treasurer Desperately Pushing to Keep Criminal Public Pension Fees Secret

Screen Shot 2014-06-30 at 11.07.57 AMOne of the most important revelations to emerge in 2014 to-date, is the fact that public pensions are taking on an increasing amount of irresponsible risk in order to meet return targets. The primary way they are doing this is by investing a larger and larger percentage of assets with “alternative investment” managers such as hedge funds and private equity firms.

Specifically, states have increased allocations to alternatives to $460 billion, or 15.3%, from only 3.3 percent in 2001, according to the National Association of State Retirement Administrators. However, this is just the tip of the iceberg. What is really shocking, and extraordinarily disturbing, is the fact that the deals these public pensions enter into, and associated fees paid, are intentionally kept secret from the public, and the people’s whose assets are at stake have absolutely no idea how their money is being invested.

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The Nuclear Waste of Debt Issuance – Wave Division Plans $150 Million in PIK Bonds to Pay Owners a Dividend

Screen Shot 2014-06-17 at 2.10.06 PMIn 2014, I’ve focused extensively on America’s latest credit bubble due to the fact I believe we have now entered the final “crack-up boom” phase where things just get downright ridiculous. In early May, I wrote an article highlighting the triumphant return of some of the worst practices of the pre-financial crash era in the post: Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled. In it, I noted two particular types of resurgent debt deals:

The first of these are known as “dividend deals.” For those of you who are unfamiliar with them, you might not believe what they actually are. Basically, dividend deals are when companies owned by private equity firms tap the credit markets, and then a sizable percentage of the money borrowed is used to cut a check to the private equity owners themselves. Often times, the remainder of the debt is used to refinance existing debt.

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Credit Bubble Update – Issuance of CLOs Expected to Hit Record in 2014

Screen Shot 2014-06-04 at 3.44.53 PMThe effort to recreate the disaster of 2008, but on an even more colossal scale, is moving along at a brisk pace. In the past several months, we have seen the triumphant return of many of the worst practices of 2006/07 to such an extent that I have made it a key theme of this site in 2014. For those of you playing catchup, I suggest reading the following:

Junk Borrowers Are Increasingly “Adjusting Earnings” to More Easily Sell Debt

Credit Mania Update – The Chase for CCC-Rated Bonds

Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled

Guest Post: Is There a Massive High Yield Credit Bubble?

The signs of credit and financial market insanity are everywhere, and it appears we have now entered the late stages of what Mises called the “crack-up boom.” When this cycle runs its course and crashes to the ground is of course impossible to predict, but cycle work from folks like Martin Armstrong point to a turning point sometime in mid-to-late 2015.

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