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New York Pension Said to Renege on Morgan Stanley Commitment
New York’s $125 billion pension plan reneged on a $300 million commitment to Morgan Stanley’s real- estate investing group after the business reported losses and managers left, two people with knowledge of the matter said.
The New York State Common Retirement Fund is still extricating itself after telling the bank last year that it wanted to back out of a 2008 commitment to the $4.7 billion Morgan Stanley Real Estate Fund VII, part of a group that manages $43.6 billion, according to the people, who asked not to be named because the decision wasn’t made public.
The retirement fund, the third-largest in the U.S., wrote down an undisclosed amount of cash it had already contributed to Fund VII to about zero, one of the people said. Sonny Kalsi, the former head of the unit, left in 2009, and Morgan Stanley has changed the leadership three times in the past two years. Morgan Stanley’s real-estate group told investors it expects to lose $5.4 billion of an earlier $8.8 billion international fund, called Fund VI, a person familiar with the matter said in April. Performance figures for Fund VII couldn’t be obtained.
“It’s unusual for an institutional investor to pull out of a capital commitment so long after it was made, but in this case it’s not totally surprising given the performance,” said Ben Thypin, an analyst at Real Capital Analytics Inc. in New York who covers commercial real estate.
Finding the Exit
The New York State pension plan, which covers about 1 million current and retired government workers, committed $500 million to international Fund VI in 2007, according to a report on the plan’s website. The pension, overseen by Comptroller Thomas DiNapoli, began negotiating an exit from Fund VII last year, according to the people, and is in the process of completing an agreement with Morgan Stanley.
“It’s highly unusual for investors to pull out,” said Steven Kaplan, a finance professor at the University of Chicago’s Booth School of Business. “They must figure the amount they had to forfeit is less than they’d lose by continuing the relationship.”
Morgan Stanley had planned to raise about $10 billion for Fund VII, according to minutes from a June 2008 meeting of the Contra Costa County Employees’ Retirement Association. It fell short of its target by more than half, saying it raised a total of $4.7 billion earlier this year. In September the bank named John Klopp and Olivier de Poulpiquet as co-chief executive officers of its real-estate investing business, replacing Owen Thomas, who remained chairman of the group.
Merchant Banking
Morgan Stanley’s real-estate funds are part of its asset- management unit, making investments in office buildings, retail parks, hotels and other properties worldwide. The bank itself posted about $4.4 billion in real-estate losses in 2008 and 2009, including losses on its stakes in the funds as well as lending and direct investments such as its Crescent Real Estate Equities business, which it handed over to Barclays Capital last year to end its obligation on a $2 billion loan.
“Morgan Stanley reached an agreement on a capital modification program with investors in MSREF VII in the third quarter of 2009 and all negotiations with investors were factored into the $4.7 billion fund raise announced in May 2010,” Morgan Stanley spokeswoman Erica Platt said in an e- mailed statement. “We do not generally comment on investors, but certain facts presented in this story with respect to our relationship with NY Common Fund are inaccurate.”
Platt declined to identify any specific errors, citing a confidentiality agreement. A spokesman for the New York State pension declined to comment.
Capital Call
The New York State pension made its commitment to Fund VII in August 2008, according to its website, and Morgan Stanley subsequently drew down an unspecified portion of the $300 million, the people said. The pension plan then balked on an ensuing capital call, which led to the settlement talks, according to the people.
The New York State pension system hasn’t defaulted on any other real-estate fund commitments, one of the people said.
Morgan Stanley allocated the money the pension system had contributed to Fund VII to its other investors, the people said. The bank also gave them the option to reduce their obligations to Fund VII by as much as 10 percent, according to the people.
Other investors in Fund VII include the Public School Employees’ Retirement System in Pennsylvania, according to a report from the plan.
North Carolina
North Carolina’s Department of the State Treasurer contributed $440 million to international Fund VI and has received $5.8 million back in distributions, according to a report from the fund. The remaining stake is valued at $74.6 million as of June 30, the report said.
The New York plan paid Morgan Stanley $6.25 million in the year ending March 31 in real-estate management fees, according to the pension plan’s annual report. Its investment in Fund VI, which cost the pension plan $465.8 million, had a market value of $85.4 million as of March 31, according to a report on the plan’s website. That figure is net of distributions, which the pension doesn’t disclose, a spokesman said.
The New York State pension’s performance lagged behind that of retirement plans with more than $5 billion in assets during the past five years, according to data from consulting firm Wilshire Associates.
The plan returned an average 4.16 percent a year from March 2005 to March 2010, according to the annual report posted on its website. That fell below the 4.51 percent median for public funds with assets above $5 billion, according to Wilshire Associates.
The Moody’s/REAL Commercial Property Price Index, which measures real-estate values, is 43 percent below its 2007 peak, Moody’s Investors Service said last month.
http://www.bloomberg.com/news/2010-1...ationship.html
New York’s $125 billion pension plan reneged on a $300 million commitment to Morgan Stanley’s real- estate investing group after the business reported losses and managers left, two people with knowledge of the matter said.
The New York State Common Retirement Fund is still extricating itself after telling the bank last year that it wanted to back out of a 2008 commitment to the $4.7 billion Morgan Stanley Real Estate Fund VII, part of a group that manages $43.6 billion, according to the people, who asked not to be named because the decision wasn’t made public.
The retirement fund, the third-largest in the U.S., wrote down an undisclosed amount of cash it had already contributed to Fund VII to about zero, one of the people said. Sonny Kalsi, the former head of the unit, left in 2009, and Morgan Stanley has changed the leadership three times in the past two years. Morgan Stanley’s real-estate group told investors it expects to lose $5.4 billion of an earlier $8.8 billion international fund, called Fund VI, a person familiar with the matter said in April. Performance figures for Fund VII couldn’t be obtained.
“It’s unusual for an institutional investor to pull out of a capital commitment so long after it was made, but in this case it’s not totally surprising given the performance,” said Ben Thypin, an analyst at Real Capital Analytics Inc. in New York who covers commercial real estate.
Finding the Exit
The New York State pension plan, which covers about 1 million current and retired government workers, committed $500 million to international Fund VI in 2007, according to a report on the plan’s website. The pension, overseen by Comptroller Thomas DiNapoli, began negotiating an exit from Fund VII last year, according to the people, and is in the process of completing an agreement with Morgan Stanley.
“It’s highly unusual for investors to pull out,” said Steven Kaplan, a finance professor at the University of Chicago’s Booth School of Business. “They must figure the amount they had to forfeit is less than they’d lose by continuing the relationship.”
Morgan Stanley had planned to raise about $10 billion for Fund VII, according to minutes from a June 2008 meeting of the Contra Costa County Employees’ Retirement Association. It fell short of its target by more than half, saying it raised a total of $4.7 billion earlier this year. In September the bank named John Klopp and Olivier de Poulpiquet as co-chief executive officers of its real-estate investing business, replacing Owen Thomas, who remained chairman of the group.
Merchant Banking
Morgan Stanley’s real-estate funds are part of its asset- management unit, making investments in office buildings, retail parks, hotels and other properties worldwide. The bank itself posted about $4.4 billion in real-estate losses in 2008 and 2009, including losses on its stakes in the funds as well as lending and direct investments such as its Crescent Real Estate Equities business, which it handed over to Barclays Capital last year to end its obligation on a $2 billion loan.
“Morgan Stanley reached an agreement on a capital modification program with investors in MSREF VII in the third quarter of 2009 and all negotiations with investors were factored into the $4.7 billion fund raise announced in May 2010,” Morgan Stanley spokeswoman Erica Platt said in an e- mailed statement. “We do not generally comment on investors, but certain facts presented in this story with respect to our relationship with NY Common Fund are inaccurate.”
Platt declined to identify any specific errors, citing a confidentiality agreement. A spokesman for the New York State pension declined to comment.
Capital Call
The New York State pension made its commitment to Fund VII in August 2008, according to its website, and Morgan Stanley subsequently drew down an unspecified portion of the $300 million, the people said. The pension plan then balked on an ensuing capital call, which led to the settlement talks, according to the people.
The New York State pension system hasn’t defaulted on any other real-estate fund commitments, one of the people said.
Morgan Stanley allocated the money the pension system had contributed to Fund VII to its other investors, the people said. The bank also gave them the option to reduce their obligations to Fund VII by as much as 10 percent, according to the people.
Other investors in Fund VII include the Public School Employees’ Retirement System in Pennsylvania, according to a report from the plan.
North Carolina
North Carolina’s Department of the State Treasurer contributed $440 million to international Fund VI and has received $5.8 million back in distributions, according to a report from the fund. The remaining stake is valued at $74.6 million as of June 30, the report said.
The New York plan paid Morgan Stanley $6.25 million in the year ending March 31 in real-estate management fees, according to the pension plan’s annual report. Its investment in Fund VI, which cost the pension plan $465.8 million, had a market value of $85.4 million as of March 31, according to a report on the plan’s website. That figure is net of distributions, which the pension doesn’t disclose, a spokesman said.
The New York State pension’s performance lagged behind that of retirement plans with more than $5 billion in assets during the past five years, according to data from consulting firm Wilshire Associates.
The plan returned an average 4.16 percent a year from March 2005 to March 2010, according to the annual report posted on its website. That fell below the 4.51 percent median for public funds with assets above $5 billion, according to Wilshire Associates.
The Moody’s/REAL Commercial Property Price Index, which measures real-estate values, is 43 percent below its 2007 peak, Moody’s Investors Service said last month.
http://www.bloomberg.com/news/2010-1...ationship.html