PE HUB Wire Highlights, 10.12.18


Private Equity Editor Chris Witkowsky reflects at home. Photo by Wendy Witkowsky

Florida SBA shops big portfolio, Public pension makes a bet on Venezuela

Happy Friday!

Suddenly it’s very, very busy, at least as far as news is concerned.

Have you been following the Jamal Khashoggi disappearance? Do you believe this incident will harm Saudi Arabia’s ability to transact with western business, especially as it relates to private equity? Over the years, various Saudi funds have become major players in PE as direct investors and as passive limited partners in funds. Will this status change, especially if, as has been alleged by the Turks, the Saudis played a role in Khashoggi’s disappearance and possible murder?

Already, several news organizations like the New York Times, Financial Times and the LA Times have decided not to attend Saudi’s big investment conference later this month.

Sign of the peak: For the past nine years, we’ve been keeping a wary eye out for signs of the peak and potential turns in the cycle. Forget the tumbling public markets and spiking yields on long-dated bonds, I think I found the ultimate sign of the end.

San Bernardino County Employees’ Retirement System, a $9.97 billion pension system, recently committed $30 million to a strategy managed by hedgie Gramercy to buy assets in Venezuela. The pension apparently has so much extra money lying around that it believes it can tolerate the risk of investing in a country fraying at the seams.

The system already has money committed to Gramercy to target public assets in the struggling country, where inflation is set to rise 1.37 million percent by year’s end (according to IMF) and residents have been forced to stand in lines for hours to buy basic necessities. The Venezuelan public-markets strategy has produced an 11 percent annualized return since inception for San Bernardino, the memo said.

San Bernardino expects about half the capital to private Venezuelan assets will be drawn over the next two years and invested in real estate, private equity or international treaty claims.

“Gramercy believes public assets provide exposure to similar underlying risks but the private investments are available at much more attractive valuations,” San Bernardino Investment Officer Jake Abbott wrote in an investment memo prepared for the pension board’s Oct. 9 meeting.

Yes, assets are probably as cheap as possible, but is it right to pick them off in a country where children are starving to death? Especially for a pension system — do the potential returns outweigh the reputational issues of buying out assets from under the feet of people who can barely feed themselves? As well, should a U.S. pension put its beneficiaries’ money into a system run by a president under whose rule all this is happening, and whose response is to violently crack down on his people?

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