Note: Also see Lone Star Part II, which has link to youtube video of Grayken’s comments before the OIC.
Today Oregon PERS investment arm, the Oregon Investment Council, met and awarded more than $1 billion in investment management contracts at its monthly meeting, including approving $600 million for Dallas based Lone Star and another $400 million for Boston based Grove Street Advisors. Also scheduled but postponed until February due to founder David Bonderman’s illness was another proposed $775 million investment in private equity firm, the Texas Pacific Group.
Lone Star CEO and Founder John Grayken is pictured below making his proposal for Lone Star, after having just returned from testifying at his firms trial over market manipulation in South Korea regarding the Korea Exchange Bank. This is somewhat ironic because in his proposal to the OIC Grayken noted that when his firm buys distressed securities portfolios, they “often get the underlying bank for free.” In the Korean bank’s case they plan to sell the bank to HSBC for $6 billion, if approved by regulators there.
Grayken’s firm is now positioning itself to purchase distressed debt and aggressively foreclose on both residential and commercial real estate properties here in the U.S. “The race is on to play this situation,” he said. Grayken also noted that his firm was not hurt by the subprime meltdown because they only originated the loans, having purchased a “large subprime originator in San Diego.”
Grayken added that this is as good a market we’ve seen for making lots of money in years and the “key is liquidating collateral.” What this means is that their primary strategy is to aggressively foreclose on both residential and commercial property.
Meanwhile, the Oregon legislature is considering meeting to discuss how to deal with the home foreclosure crisis and is making no connection with the PERS investment. A related article by Pulitzer Prize winner Nigel Jaquiss follows.
OIC Council members were so taken by Grayken’s proposal that they increased the proposed approved investment from a planned $400 million to $600 million.
Also on the meeting’s agenda was the proposed divestiture of companies doing business in Iran. Some might ask, why is it so easy for Oregon PERS to debate corporate governance initiatives involving distant nations while in fact much more important governance issues, including the mortgage crisis, develop unchecked in it’s own back yard?
On Saturday the Oregonian printed a story by Ted Sickinger highlighting that Oregon PERS lost $5 billion in January due to the stock market decline. This did not include potential losses in its large private equity portfolio due to the holdings becoming less liquid due to the 0verall market decline and now junk status of many bonds that. Here is an exerpt from the story.
I continue to believe that it is a mistake for Oregon PERS to have 70 percent of its assets in stocks, private equity and real estate and only 30 percent in fixed income. In fact, my clients are now positioned the exact opposite with a maximum of 30 percent in equities and related investments. Foreign fixed income is also a key focus of my client portfolios.
Perhaps this aggressive allocation once again highlights why these council positions should be paid, involve people with investment management experience and higher standards regarding potential conflicts of interest. The current OIC Chair Dick Solomon’s presence on the council and ascendance to Chair was championed by Oregon’s most prominent lobbyist and close political ally of Governor Ted Kulongowski, Len Bergstein. Solomon is pictured below.