Tuesday, December 28, 2010

Risk and pensions

Ha.   you thought this was going to be about the doings downtown today.  Not quite, but everything is related somehow. 

Can't believe I missed this.  From the Detroit Free Press the day before yesterday:  Risky bets cost Detroit pension funds $480 million.   and check out their side story: Where the Detroit pension funds went wrong. Note the picture they have there on the right.  Look familiar?  Their accounting..  a $97 (egads it's $194, 2 times 97)  million dollar investment in the casino here is now worth $100,000 37 mil, though I wonder if it worth even that.   That would be called a high risk and illiquid asset.  Still wondering what specifically makes up our pension fund's illiquid assets... and what return current (and past!) private equity investments have garnered in a final accounting.   Wonks can dream.

Does make you want to give 200 million working capital to people who make those types of decisions. Doesn't it.

We all know what one of the 'bets' the Detroit pension system made is right? Would be a sure thing casino in Downtown Pittsburgh.  That has turned out real well for them.  Not.  In fact, I really suspect that the bath (euphemistically the restructuring ) the Detoit pension system took on its investment here is why the debt rating of the casino here is considered a "selective default". 

I can't resist.  Just one minor investor lost just under $200 million dollars on the casino, yet the casino is appealing it's under $200 million dollar property assessment. 

Looks like they have a whole series on the problems the Detroit pension system has. The really really sad thing in all that is that the Detroit public pension system is in far far better financial shape than is the city of Pittsburgh's pension fund. Really.. by far.  Also much more transparent if you believe that even.  That's the thing that gets me about all the pension bruhaha here.  Folks on all sides debating over things that are mostly unknown to the public, and even to the folks who are supposed to know what is going on.


Blogger Felix Dzerzhinsky said...

They can't say they weren't warned, can they?

Tuesday, December 28, 2010 10:14:00 PM  
Blogger C. Briem said...

I have to say I was thinking of you Felix Edmundovich. At the Tate Modern in London in the fall I saw the most amazing exhibition of Soviet propganda artwork.. much of it from before WWII.

Tuesday, December 28, 2010 11:08:00 PM  
Blogger fester said...

Chris, the Free Press sentence structure is a bit convoluted, but I think another investment was written down to $100,000 while the casino investment was written down to $37 million per fund for only a 60% loss of capital in under three years!

Tuesday, December 28, 2010 11:49:00 PM  
Blogger C. Briem said...

noted. thanks. Raises an interesting question. Being very illiquid you have to wonder what the real value is if they felt pressured to lower its book value to 37 million. Probably a lot lower than that right? or 74 million I guess if they really meant each system. Then, if they own a 74 million chunk of the casino, what percentage of equity is that you have to wonder? Seems to me a lot of their loan and loan guarantee had to have been converted to equity somewhere along the way and that never made much news in itself. Makes me wonder how much cash Bluhm himself had to put in to take ownership of the whole thing.

Wednesday, December 29, 2010 6:52:00 AM  
Blogger fester said...

I'm pretty sure the loan and loan guarantee conversion into equity was the selective default event from last summer. Yeah, that got a quick blurb in Bloomberg and a three paragrapher in both the PG and Trib, so it was covered but no one noticed.

Doing a post-midnight back of the coloring sheet calculation, I think the total value of the Rivers project based on just the Detroit stake is somewhere in the high 300s

Wednesday, December 29, 2010 8:53:00 AM  

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