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Cereberus Won't Let Investors Out


Parsad
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That seems to be normal for the current PE industry. In California, CALPER's actually raised their PE allocation to 14% from 10%. It was 6% in 2006. My guess is that pension funds appreciate these investor lock downs because they prevent the PE firm, and therefore the pension fund, from marking to market. For example, most of that 4% increase in CALPER's PE allocation came from the decline of its other assets. Without forced asset sales, CALPER's can claim that PE outperformed the market by declining a mere 5%.

 

 

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Actually many of the pension funds aren't that happy with Private Equity.  Many of the trustees and CIO's signed up and committed to allocate more capital to the various funds/firms in which they invested when they funds/firms needed it.  This was obviously pre the private equity bubble when all these guys thought they were going to be the next Yale.

 

Now the pension funds are on the hook for continued capital calls to many of their funds.  We have heard from a few that they have quite sternly asked the PE funds/firms to not invest the capital they have since the pension funds are having a tough time coming up with the money for the new capital calls.  The pension funds are selling down equities and fixed to fund their terrible decision to commit a significant amount of money to PE at exactly the wrong time.

 

Such a pathetic display for so many different reasons.

 

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A distinction should be made between hedge funds and private equity funds. Although Cerberus is better known as a PE manager, the article refers specifically to their hedge fund.

 

With PE funds, investors cannot ask for their money back - they get their money back only when underlying investments are realised or when the agreed term of the fund ends. The only way for investors to get out is to sell their position as secondaries to other investors. (Some PE funds specialise solely on investing in secondaries.)

 

We shouldn't have sympathy for funds like CALPERS who are now suffering from "the denominator" problem. They are big boys who knew the rules when they invested in PE. The problem is that many of them overcommitted to PE when times were good on the assumption that their commitments would never get fully called before distributions came back from earlier investments. They are crying foul now because there are very punitive terms for not funding their commitments. By putting pressure on PE managers not to make investments, they are putting other investors who may want to see the managers putting capital to work in these distressed markets at a disadvantage. Unfortunately, because of their clout, the PE managers are likely to defer to them to some extent.

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OEC I totally agree with you and after re-reading my post didn't want anyone to think I meant pathetic in the sense that I felt bad for Calpers or any of the others. 

 

In my opinion the CIO's and trustees that blindly followed Swenson's book and allocated the endowments that way should be fired.  Many of them are completely incapable of allocating capital correctly.  It is such a shame that schools, municipalities, unions, etc...have these individuals overseeing their retirement money.

 

Each firm/fund is different so I realize that I am generalizing across many areas.

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Oec2000, thanks for the correction. I unintentionally twisted the thread by misreading the article.

 

Dcollon, while I agree that pension funds are manipulating PE activities to protect their own butts, I think that the pensions prefer to sell their stakes in the secondary market rather than ordering a liquidation of the PE firm assets. http://www.bizjournals.com/houston/stories/2009/07/06/daily22.html

 

I'm mostly looking at CALPER's, which may the lowest common denominator, but they have been desperately trying to avoid marking to reality. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax1qj6l6PfdU

 

 

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