2011-10-14 "CalPERS fires partner in struggling winery investments" by Dale Kasler from "Sacramento Bee" newspaper
CalPERS expected to harvest a fortune from lush fields of chardonnay, cabernet sauvignon and pinot noir.
But like many of the pension fund's big-time real estate deals of the past decade, the pension fund's investment in the wine industry turned sour.
After pouring $200 million into vineyards across California, Oregon and Washington, CalPERS said this week that it is firing the firm that has been its investment partner and land manager.
The investment has lost 40 percent of its value and was worth $122 million as of March 31, the latest figures available.
The California Public Employees' Retirement System isn't bailing out of the wine business. Instead, spokesman Brad Pacheco, said CalPERS is negotiating to bring on a new partner by year's end.
The dismissal of Premier Pacific Vineyards, the Napa company that teamed up with CalPERS nine years ago, marks the latest effort by the pension fund to fix a real estate program that lost billions during the crash.
"This is part of the ongoing restructuring of our real estate portfolio," Pacheco said.
Premier Pacific became the sixth real estate partner to have resigned or been fired by CalPERS over the past two years. CalPERS has adopted a more conservative strategy for future investments, concentrating on safer deals such as leased-up office buildings.
Richard Wollack, managing principal of Premier Pacific, declined to comment.
Unlike many of CalPERS' other real estate investments, the vineyard deal hasn't been crushed by falling land values. Prices have actually held up pretty well across wine country.
Instead, the problem lies with overall weaknesses in the economy and the wine market. The investment has also been tripped up by environmental issues, particularly with a controversial Sonoma coast project.
The vineyard venture was CalPERS' first agriculture investment. It was part of a growing movement among institutional investors to get into the wine business.
"They're not alone," said industry expert and professor emeritus Robert Smiley of the University of California, Davis. "A lot of institutions have invested – major university endowments, major pension funds."
The CalPERS-Premier partnership purchased thousands of acres of prime grape-growing land from Santa Barbara County to Washington's Columbia Valley. It has sold grapes and, on occasion, entire vineyards to wineries.
CalPERS went into the deal expecting 15 percent annual profits. And in 2007, the partnership sold off three of its properties "at double-digit returns," said William Hill, a founder and former executive at Premier Pacific. "Things were looking pretty darn good in 2007 and early 2008."
The vineyard deal seemed so bountiful, in fact, that another big investor joined up. Commonfund, a Connecticut firm that invests for college endowment funds and nonprofits, put $50 million into the partnership in 2008.
Then the economy collapsed. The CalPERS partnership had concentrated on grapes for the high-end market, wines that sell for $50 or more a bottle. That business slumped badly, drying up demand for the CalPERS grapes and land, according to Smiley and other experts.
Another problem: Because of environmental restrictions, the partnership tied up millions of dollars in property that it hasn't been able to plant yet.
In eastern Napa Valley, plans for 330 acres of cabernet sauvignon have been pending for five years while the partnership completes environmental studies.
And for the past seven years, the partnership has been battling environmentalists over a proposal to chop down redwoods to make way for vines.
The partnership paid $28 million for a 20,000-acre forest in the coastal mountains of northwest Sonoma County. The plan: Clear-cut an 1,800-acre tract, known as Preservation Ranch, and plant grapes on it.
The investors said profit from the vineyard would pay for restoration of the rest of the forest. They also pledged to donate 2,400 acres for a wildlife preserve.
But the Sierra Club and other groups protested, saying the plan violated CalPERS' promises to avoid environmental harm. CalPERS said it was comfortable with the proposal.
A Premier Pacific official, Tom Adams, told the Santa Rosa Press Democrat that his company's removal by CalPERS shouldn't hurt the project. But wine industry officials say the future of Preservation Ranch is hazy.
"Who knows what'll happen now?" said Nick Frey, president of the Sonoma County Winegrape Commission.
2011-11 "Behind the scenes with the CalPERS pullout" by John Stephens from "Activist News" newsletter:
In 2005 I alerted the Redwood Chapter of the Sierra Club about a two-inch article in the Chronicle Business section that said CalPERS, the public employees $33 billion pension fund, had invested in a massive forest to vineyard project in Sonoma County called Preservation Ranch.
Chris and I are public employee annuitants in the program, and we wrote our objections about using our retirement funds to clear forests.
In a follow-up letter the Redwood Chapter pointed out that it was inconsistent with CalPERS' stated purpose and mission. CalPERS has lost 40% of its investment on the project.
On Oct. 12 of this year CalPERS announced it was pulling out. Forest activists in Sonoma are rejoicing.