We first introduced readers to the Dallas Police and Fire Pension (DPFP) crisis last summer in a post entitled "Dallas Cops' Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid." For those who have managed to avoid this particular storyline for the past 15 months, here is a brief recap of how it all started from our original post on the topic:
The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure. According the the National Real Estate Investor, DPFP was once applauded for it's "diverse investment portfolio" but turns out it may have all been a fraud as the pension's former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%. Guess it's pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your "discretion".
To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP's administrator for a couple of decades right up until he was forced out in June 2014. Starting in 2005, Tettamant oversaw a plan to "diversify" the pension into "hard assets" and away from the "risky" stock market...because there's no risk if you don't have to mark your book every day. By the time the "diversification" was complete, Tettamant had invested half of the DPFP's assets in, effectively, the housing bubble. Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa.
Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets "performed" remarkably well throughout the "great recession." But as it turns out, Tettamant's "performance" was only as good as the illiquidity of his investments. We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have "discretion" over how they're valued.
In 2015, after Tettamant's ouster, $600mm of DPFP real estate assets were transferred to new managers away from the fund's prior real estate manager, CDK Realty Advisors. Turns out the new managers were not "comfortable" with CDK's asset valuations and the mark downs started. According to the Dallas Morning News, one such questionable real estate investment involved a piece of undeveloped land in the Arizona desert near Tucson which was purchased for $27mm in 2006 and subsequently sold in 2014 for $7.5mm.
Then the plot thickened when, in April 2016, according the Dallas Morning News, FBI raided the offices of the pension's former investment manager, CDK Realty Advisors. There has been little disclosure on the reason for the FBI raid but one could speculate that it might have something to do with all the markdowns the pension was forced to take in 2015 on its real estate book. At it's peak, CDK managed $750mm if assets for the DPFP.
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Imagine how bad all of the pensions will be once the Stock Market is finally allowed to CORRECT!
ReplyDeleteThese under-funded pensions currently have the benefit of an inflated Stock Market.
Think about that for a minute. If they are bad now, just wait for the next inevitable correction of 10% or more.
Yep the other shoe is about ready to drop. Im 57 looking at a nice 401k right now. Less then 10 to go.? I sure hope so!my backup plan, is what some call a prepper. I call it being prepared
ReplyDelete9:09...nicely done and we are not alone.
ReplyDeleteEntropy.
ReplyDeleteThe breakdown of the social structure, the economy, and the radicalization of politics (and the people) are just a few reasons (don't EVER forget the "Two Sets of Laws" problem) that you better be buying guns, storing water and food, and planning on defending yourself and your family.
Things WILL happen fast.
Across the nation, MILLIONS of people are finding out that they will be eating crackers and cheese for dinner a few times a month, not lounging on a beach somewhere when they are 70.
Why? Because the people they elected to protect them threw them into a shark pool coated with blood.
Union dues were used for 65 million dollar contributions to the Democrat Party. Trips to "conferences". Luxury expenses and high salaries.
9:09....your 401(k), if not confiscated by the government by then, will be worth less than 10 grand after these slimy gangsters finish raiding the stock market.
Keep cheering and hold on tight.