Wednesday, April 14, 2010

Heckuva Job

I'm sure all involved were well compensated for their brilliant actions.

In 2007, as the global property price bubble was about to burst, professional investors gave Morgan Stanley Real Estate Fund VI International $8.8 billion to invest in properties around the world. Some $452.5 million of that money, 5 percent of the total, came from the Pennsylvania Public School Employees Retirement System.

Morgan Stanley has now warned investors it may lose $5.4 billion, or 61 percent, of that total as property values collapse, say the Wall St Journal and Bloomberg Business Week. "That would likely make it the biggest dollar loss in the history of private-equity real-estate investing," says the Journal. "The losses come from investments in properties such as the European Central Bank's Frankfurt headquarters, a big development project in Tokyo and InterContinental hotels across Europe."

Of course we should all remember that there's some risk in any investment, but for employee pension funds "some risk" shouldn't include nontrivial chance of losing 61% of the investment.