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Washington state investments
Wed July 18, 2012
Washington's pension owns resort in paradise, among far-flung investments
Originally published on Tue January 8, 2013 4:47 pm
OLYMPIA, Wash. – There’s a government office in Olympia where employees travel the globe and titans of Wall Street are regular visitors. The singer Bono even dropped in once, after a concert.
We’re talking about the Washington State Investment Board. Its job is to maximize returns on an $85 billion investment portfolio. To do that the Board invests in some very exotic places.
About the closest most of us will ever get to Tahiti is a Paul Gaughin painting or the beach image on our computer screensaver. But Steve Draper’s been there several times.
“It’s an astoundingly beautiful place," he says. "There’s no other way to say it. Powdery white sand beach with the swaying palm trees.”
Draper goes to Tahiti not for vacation, but for work. You see he’s a Washington state investment officer. And his portfolio -- lucky fellow -- includes a French Polynesian resort company called Pacific Beachcomber. It has properties on several islands in the South Pacific.
Back in 2005, the man behind Pacific Beachcomber came to Seattle and requested a meeting with Draper.
“French Polynesia was not on our ‘to do’ list," Draper says. "But out of a courtesy I took the meeting and it became immediately interesting.”
The developer was looking for a major financial backer to help him expand his footprint in French Polynesia -- including an exclusive resort on Tetiaroa, otherwise known as Marlon Brando’s private island.
Brando discovered this paradise in the 1960s while filming "Mutiny on the Bounty." In 2007, after two years of due diligence, the Washington State Investment Board paid $200 million to become the majority owner and only outside investor in Pacific Beachcomber. The new resort is called "The Brando" and is scheduled to open late next year.
Developer Richard Bailey told me it will be the most eco-friendly resort in the world -- a legacy of the late Brando.
“We’re building a luxury resort in keeping with the vision that he and I came to after numerous meetings and discussions and arguments,” Bailey says.
Tahiti isn’t Washington’s only star-studded investment. That meeting with Bono? Washington is a partner in the U2 front man’s private equity firm. Tahiti also isn’t the state’s only overseas holding.
“We have affordable housing in Brazil, we have beach properties in Vietnam, we have warehouses in Eastern Europe,” says Chief Investment Officer Gary Bruebaker.
Also cement plants in India, grocery stores in Romania and shopping centers in Brazil. Global emerging markets. That’s a key focus these days at the Washington State Investment Board. Because here’s the thing. It has to fund the pensions of 400,000 current and future state retirees.
To do that the Board has to hit a bullish target set by the legislature of nearly 8 percent returns. A traditional mix of stocks and bonds won’t do. So Washington -- like a lot of states -- seeks out higher risk strategies that can return higher rewards. To play in this arena takes guts and experience. And that’s where Gary Bruebaker comes in.
“You saw the movie 'Jerry McGuire?' You remember the part ‘show the money,’ that’s me," he says.
Bruebaker -- the son of a longtime Oregon state worker -- may work for a state agency. But he’s a self-avowed capitalist and makes no apologies about investing Washington dollars overseas.
“Quite frankly, I think it’s great economic development that I make money in Vietnam and I make money in Brazil and I take their money and I bring it back here and 91 percent of it gets spent in the state of Washington,” he says.
That stat comes from a study that shows most Washington government employees stay in the state after they retire. Martha Tofferi of Seattle is one of them. But she worries the Investment Board is chasing profits at the expense of social values. For example, there’s the partnership with a real estate fund based in the Cayman Islands.
“Tax haven,” Tofferi says.
And a recent commitment to invest in Nigeria.
“I look at all the religious violence that’s going on there," Tofferi adds. "I just wonder how thoughtful they are before they go into Nigeria, wherever.”
The board has passed resolutions prohibiting direct investments in Sudan and Iran. But there’s no requirement to sell off existing holdings. And the resolutions explicitly don’t apply to private equity or real estate deals.
Senate Majority Leader Lisa Brown sits on the Investment Board. The Democrat says the goal is always to choose partners who are good citizens of the world. But she admits with $85 billion in assets, the Board doesn’t have the staff to police every investment.
“I think we work really hard to try to address those concerns," Brown says. "But with a portfolio that big some things will come to light that will turn out to have been bad investments either from an economic or social perspective.”
An economist by training, Brown adds that an investment in an emerging foreign economy ideally improves lives there and at the same time makes money for Washington’s pension plans.
On the Web:
Washington State Investment Board:
Pacific Beachcomber (The Brando):