We have an addendum to Friday's "Giant California pension funds may lower earnings expectations", below.*
From Vanity Fair:
...But BlackRock’s most public and costly mistake—for its clients, at least—was its purchase of the iconic Manhattan housing complex Stuyvesant Town and Peter Cooper Village, a $5.4 billion deal that went into default in early January. Even in 2006, when BlackRock and the New York development company Tishman Speyer bought the 80-acre collection of 110 buildings in the largest residential-real-estate transaction in U.S. history, the price they paid, says Craig Leupold, the president of GreenStreet Advisors, was regarded as “surprisingly high. Everything would have had to have gone right for this deal to have made sense in any sort of short-term—say, 10 years—investment horizon.”
Shortly after the default, BlackRock and Tishman walked away from the deal, handing the property over to their creditors, in what was widely perceived as an acknowledgment that they would never recoup their investment. Today, the investors who bought equity in the deal have also lost their money, including major BlackRock clients—most notably the $200 billion California Pension and Retirement System (calpers), the nation’s largest pension fund, which effectively lost $500 million. At press time, calpers was weighing whether or not to retain BlackRock as a real-estate adviser.
At the mention of these blunders, Fink, who has been sprawled in his chair, suddenly stiffens. His voice takes on a harsh tone that is leavened only by his visible anxiety. “When you manage money, you are going to make mistakes. You are not going to be 100 percent perfect. Our job is to minimize those problems, to cauterize them,” Fink says, his voice rising. “We’re not perfect, and I’ve never said to anyone that we are going to be perfect. Our investors had all the information we did and they did their own due diligence.” He exhales deeply. “Our real-estate division is struggling because of bad performance, and we’re making changes. I don’t care if the whole industry blew up, our job is to do better than the industry, and we didn’t in real estate,” he says. “I am not making excuses. I lose sleep over these problems.” The Stuyvesant Town loss was “an embarrassment,” he says. Then his voice drops to a whisper. “I mean, my mother gets her pension from calpers.”...
HT: The Los Angeles Times' Money & Co. blog.
*Eight months ago Mr. Fink had warned CalPERS about their overly-optimistic expected rates of return:
...CalPERS needs to earn 7.6% a year over the next 15 years to become fully funded but that might be just pie in the sky, one of the investment world's leading lights told the pension fund's board this week.
"You're not going to get a 7.6% return when the U.S. is seeing a subpar (economic) growth rate of 2(%) to 3%," said BlackRock Inc. Chairman and CEO Laurence Fink, adding, “You'll be lucky to get 6% on your portfolios, maybe 5%.”...