Saturday, February 18, 2012

Texas Teachers Go PEU

The Texas Teacher Retirement System (TRS) purchased a $250 million equity stake in Bridgewater Associates LP, the world's largest hedge fund.  The teacher pension fund is the state's biggest and 23rd largest in the world. This move came after TTRS invested $3 billion each with KKR and Apollo Global, giant private equity underwriters (PEU's).

Bloomberg continued their obtuse characterizations of such deals with:

Bridgewater Associates LP, the hedge fund run by Ray Dalio, agreed to sell a $250 million equity stake to Texas Teacher Retirement System as the firm diversifies ownership from its founder.
More like:

The founder cashed in a sliver of his stake for a quarter billion.
Bloomberg, feel free to use it as owner Ray Dallo continues monetizing his founder holdings. 

Our hope is that most of the company’s ownership will be transitioned in this way over the next 10 years, with Ray and his family trusts maintaining ownership interests of between 10 and 20 percent."

It's so passive and third person, the exact opposite of the way Hedgies/PEU's operate.

I expect Texas Teachers knew the risks of investing in Bridgewater.

Britt Harris, chief investment officer for Texas Teacher,was CEO of Bridgewater from November 2004 through June 2005. 
Bridgewater's Dallo implied Harris' "fabulous character" didn't fit with hedge firm culture, which I see as hyper-aggressive, obsessed, solely bottom line focused.   Culture clashes with Bloomberg's very language on the Texas Teachers' deal

Founders want the money, but won't give up an iota of control.  Bridgewater's deals involve nonvoting stock.  The Carlyle Group's co-founders keep control of every important decision post IPO.

Investors, public pension of general public, are expected to fork over cash and have few rights in return. Somehow, this is characterized as economic freedom.  It's certainly freeing to the pocketbooks of billionaire PEU founders.

Texas Teachers have their share of the golden goose, only if the goose fails to lay a good egg, teachers could be on the line for millions in capital calls.  Ask CalPERS how much they had to fork over to The Carlyle Group in the 2008 financial meltdown?  CalPERS owned 5.5% of Carlyle which demanded $681 million in capital calls.  CalPERS ponied up, something Carlyle refused to do earlier that year when Carlyle Capital Corporation (CCC) imploded.

Freeing billionaire pocketbooks, good.  Constraining billionaire pocketbooks, bad.  That's the Texas Teacher lesson for the day. This message was brought to you by TRS.