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 the 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 focused on private Venezuelan assets will be drawn over the next two years and invested in real estate, PE 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.
The system has a $512 million relationship with Gramercy, including two separate-account strategies and six commingled funds, one for Venezuelan public funds.
“We along with Gramercy believe the private, illiquid investments related to Venezuela are available at even more attractive valuations,” a spokesperson for the system said in an email.
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?
Obviously, these considerations have nothing to do with what investors say is their only consideration — financial returns and making money for beneficiaries.
But if I’m a public worker in San Bernardino, I at the very least want to be asking what the people managing my retirement money are thinking.