In Search of the Perfect Investment

I had dinner with last night with the manager of a fund I’m in. I got into 100 years ago because of various boring reasons, including the manager was a friend of my business partner. and I thought my business partner knew something about investing. He didn’t.

That’s Rule Number One of investing. Never listen to your friends. Never, ever listen to your friends without doing your own extensive research. and always presuming that your answer will be an emphatic NO.

When in doubt, stay out.

Anyway, the fund hasn’t done badly. It hasn’t lost my money. It ekes out small returns. But what annoys me is that being in its a gigantic leap of faith. The fund is secrecy incarnate. It owns a lot of interests in private equity funds which it bought on the cheap — 40% to 60% off the NAV (net asset value). It’s proud of its deals, but secretive about what they are. This bothers me and clouds what they do. I like to see everything on the table.

Last December my partner took out all his money — but forgot to tell me. So I’m sort of stuck until next December. Which may or may not be a blessing in disguise, since — finally — some of their private equity funds are beginning to make distributions to their long suffering limited partners (including me).

You’re not going to believe this but my two private equity funds I own directly — one from Citigroup and one from Goldman Sachs have recently sent me money. Yes cash!

On a side note, the Citigroup fund, which is now run by someone called StepStone Capital Partners, sent me all the money. One hit.

Goldman, greedy as ever, sent me this calculation of the monies they were sending:

Goldman’s Distribution Details
Total proceeds of dividends and “partial harvests”	$106,996
Less management fee (for July 1, 2010 through December 31, 2010)	(12,714)
Distribution	94,282
Less capital call	(36,242)
Net cash movement (that’s the money they send me)	$58,040

Seeing the size of their big fees versus my small returns always inflames me. (I’m much too emotional for this game.) However, it is cash. And cash is just as good as money.

Heck, I could even have paid for last night’s dinner. My fund manager actually wanted me to pay! I don’t make this stuff up.

As I’ve said a thousand times, I would have been richer, happier and a lot less crazy if I had taken 100% of the monies I got from selling my business in September 1997 and dumped every nickel into triple-tax free muni bonds. I did, of course, buy a bunch and I’m happy to report that not one of my muni bonds have defaulted — not one. This contrasts with a lot of other “sure-thing” rubbish I invested in.

Here’s a little trade: Buy some NAK. Sell calls at $19 for 70 cents.  According to Pete Rawlings, my call option maven, “The NAK bet looks good to me.  4% if uncalled or 11% if called in a month.”

Once upon a time I invested (with others) in a shopping center. Here’s what happened to the shopping center, courtesy a letter I just received and edited:

The shopping property was purchased in 2001 and was profitably operated until 2008 when Circuit City (a huge tenant) went bankrupt and out of business. This vacancy caused other tenants to demand (and receive) rent concessions in order to be able to stay in business (or to agree to remain open instead of closing their stores and going “dark” until their leases expired). This resulted in the center’s net cash flow falling below the amount needed to service the debt, and with the center almost fifty percent vacant, it became a property that was in need of a major redevelopment plan. This set of circumstances resulted in the decision to request the lender to accept cash flow payments based upon actual operating income and commence negotiations for a mortgage modification agreement.

The lender did agree to accept the cash flow payments and, after extensive negotiations, eventually agreed to accept the sum of $x in full payment of the existing debt which had a balance in excess of $x + 18% excluding accrued interest and other amounts due under the loan. This led to the restructuring proposal, which consisted of asking the existing limited partners to ante up more money. (I paid my share.)

In addition to the equity raise there’s also a redevelopment loan from a bank.

We are pleased to advise you that our negotiations with ABC and DEF (two potential new big tenants)  have been finalized and the leases have been signed. While this is the major hurdle that needed to be overcome, we do need all of the pieces to come together to be able to complete the project. This includes the lease modification agreement with one of the existing tenants, which is mostly completed and is expected to be finalized within the coming weeks. Compliance with town zoning and building code requirements is an open issue that must also be resolved. (This is proviing expensive.)

There are many bouncing balls that need to come together — signing leases with new and old tenants, getting town approvals and getting all the new consstruction done for budget and on time.

So far, we are pleased with the progress that has been made.

There’s of course, far too many shopping centers in the U.S. But not in the area of my shopping center, hopefully.

Favorite New Yorker cartoons.

The only statute ever erected to commemorate that one person who must exist somewhere, anywhere. Hint: It’s not me.

Harry Newton who discovered a new, better, improved, heavier tennis racket called the Wilson BLX Pro Tour. Some star plays with it, allegedly. I played last night with a loaner racket strung with Nadal’s RPM Babolat black copoly strings.