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CalPERS severing ties with firm behind giant vineyard project

Preservation Ranch (click to enlarge)

By BRETT WILKISON
THE PRESS DEMOCRAT

The California Public Employees’ Retirement System, the giant state workers pension fund, is severing its investment ties with a Napa-based vineyard management firm pushing one of Sonoma County’s largest and most controversial land- use projects.

The move threatens Preservation Ranch, the proposed 1,769-acre forest-to-vineyard conversion in northwestern Sonoma County, wine industry sources said.

Environmentalists have rallied nationwide against the project, saying it would harm water resources and wildlife, including beleaguered salmon and steelhead populations in the Gualala River watershed.

CalPERS confirmed the investment decision Wednesday.

The $225 billion fund, the country’s largest government pension system, has a majority stake in Preservation Ranch through an investment portfolio managed by Premier Pacific Vineyards of Napa.

The coming shakeup — CalPERS has yet to name a replacement manager for its vineyard investments — could put Preservation Ranch on hold, industry sources said.

A CalPERS spokesman would not say Wednesday how the fund’s decision could affect the proposed vineyard development on nearly 20,000 acres of second-growth redwood and fir forest outside of Annapolis.

An environmental impact report on the project, which government officials say is the largest of its kind in modern state history, is due out at the end of this year. Public comment periods and hearings before county boards, including supervisors, would follow.

Supporters insisted the investment decision would not stall the project, first proposed in 2006.

“The management change should not have any impact on Preservation Ranch,” Tom Adams, land-use director for Premier Pacific Vineyards, said in an email.

The move was announced to the firm’s customers and business partners in an Oct. 3 email from Richard Wollack, Premier Pacific’s co-founder and managing principal.

“We are writing to inform you that effective the end of this year we will be exiting the management of vineyards we developed and managed for CalPERS,” Wollack wrote.

A yet-to-be named manager would take over on Jan. 1, he said.

Wollack said Wednesday that the company would have no comment.

The email announcement and a Sept. 30 meeting the company held with its staff to convey the news were first reported by Lewis Perdue, a Sonoma resident and editor and publisher of Wine Industry Insight, an online publication.

Premier Pacific Vineyards was created by Wollack, a Bay Area real estate investment firm owner, and William Hill, a longtime Napa vintner.

The company develops and manages high-end vineyards. Its website lists current operations on 26 vineyards in California, Oregon and Washington.

The company purchased the 19,652-acre Preservation Ranch property in 2004 for $28.5 million. The former owner, a Willits-based timber company, had previously proposed 10,000 acres of vineyards on the same property and other land in adjacent Mendocino County.

Starting in 2002, CalPERS has invested $200 million in two vineyard portfolios managed by Premier Pacific.

CalPERS latest real estate investment report shows its assets after fees in the two portfolios totaled $122 million at the end of March, a 39 percent drop from its initial outlay.

Other investors include Premier Pacific Vineyards, which committed $10 million in 2002, and Commonfund Realty, a Connecticut-based endowment adviser, which committed $50 million in 2008 toward six land purchases.

CalPERS is the majority investor in Pacific Vineyard Partners, the portfolio that includes the Preservation Ranch property, county records show.

Title to the land is listed under four affiliated business units.

CalPERS spokesman Wayne Davis would not discuss the details of the agency’s vineyard ownership or how the investment change could affect that ownership, including control of Preservation Ranch.

Generally with such changes “CalPERS would retain its share of the ownership of underlying assets,” Davis said.

Wine industry sources provided a similar assessment.

One local vineyard developer who declined to be named said the fallout for Preservation Ranch was clear.

“On hold, baby,” he said.

Davis said the investment switch was part of the pension fund’s ongoing restructuring of its real estate assets.

Environmental leaders said Wednesday they weren’t yet sure what to make of the news.

“It’s a very interesting development,” said Jay Halcomb, chairman of the Sierra Club’s Redwood Chapter.

The group and others have called on CalPERS to abandon the vineyard plans and manage the entire property as a sustainable timber reserve. Halcomb said those calls would now likely increase.

“We’ve been saying for a couple of years that this was a bad investment to begin with. And of course with the wine market struggling, it didn’t make any sense,” he said.

Preservation Ranch supporters have pushed back, saying the project represents the best balance between development and environmental protection. It would permanently set aside 15,000 acres for timber operations, dedicate 2,700 acres for a private wildlife preserve and donate 220 acres for a public park expansion.

Premier Pacific Vineyards expected to spend up to $7 million on studies, including $2 million on the draft environmental impact report. Its application files at county offices stand four feet high.

David Schiltgen, the county planner overseeing the application, said the ownership switches are not uncommon for large land use projects making their way through the review process.

“It’s not the rule. It’s more the exception,” he said.

A change on a project the size of Preservation Ranch could present some challenges, he said.

“It’s always difficult to change horses midstream,” he said.





17 Responses to “CalPERS severing ties with firm behind giant vineyard project”

  1. Lets be Reasonable says:

    @GAJ – I would think that real estate now would be a good investment, since much of it has lost 50% – how much lower can it get? It looks like CalPERS has about 9% in real estate and much of the rest in stocks. Personally, I would think stocks more risky than real estate in the current environment. I saw an interview with the head of CalPERS recently, and he was talking about buying when the DOW was getting down to 10,500. I was thinking he was crazy, thinking that it was going to keep going down, but he was saying based on valuations that there were good buys out there. A couple of weeks later he looks pretty smart to me – I certainly wish I had moved my money back into stocks then. But then I’m not an expert. CalPERS has experts, you listened to experts, how is it so different? I personally rode the market down and then back up in 08/09, but as you say, many weren’t so lucky and bailed at the wrong time fearing that they would lose the rest of their retirement. Your employees were lucky to have someone watching over their retirement. Personally, I’m pretty comfortable having CalPERS watch over mine.

  2. GAJ says:

    LBR, as you might imagine, a big chunk was in the market along with some bond funds.

    We liquidated in June ’08 prior to the crash as part of the sale of the company so I’m guessing had we not sold the valuation would have plummeted, however, my guess would have been that as retirement money should always take the long view we would have not panic sold and the valuations would have recovered.

    Anyone who says they “lost” the bulk of their retirement must have sold at or near the bottom.

    For example, in my non 401k money that is in the market my valuations currently are down 11%, however, I refuse to sell a stock at a big loss and as they are all in dividend stocks earning an average of nearly 7% the “panic urge” is simply not there.

    Worst case I keep the same stocks and collect the dividends though to “hedge” I have bought some of the very same stocks and the new lower prices to lower the average price paid.

    Love dividend stocks and 20/20 hindsight I should have had a big portfolio of them in the 401k.

    Mind you I have an equal amount of money tied up in two rentals which I never plan to sell, however, THAT would NEVER have been part of my 401k as a court might view real estate in a 401k as too “speculative” should have a lawsuit ever have occurred.

    That was the advice I received from Pension Specialists and Financial Planners whilst I administered the 401k.

    As you may recall, CalPers and other Pension Funds took a major bath on speculative real estate investments which is why they came begging for “makeup money.”

    I’m surprised they are still in real estate to be honest…especially this kind of real estate, (as opposed to a REIT).

  3. Lets be Reasonable says:

    @GAJ – nice program for small businesses. What proportion were you putting into the stock market? How much of a hit do you think you would have taken if you were still doing it during the 08 crash?

  4. GAJ says:

    It was a matching Safe Harbor 401k where the company matched up to a maximum of 4% if the employee put in 5%, the maximum matching allowed by that kind of plan for small businesses.

    It’s an optional plan available to small businesses that want to provide incentive for employees to save for retirement.

    If the company went bankrupt the 401k money was still safe.

    The employees that chose to participate did very well in the plan that ended in June of ’08 when we sold the company.

    My pension administrator said that indeed some similar plans took much riskier routs for their investments and some suffered legal issues (deservedly so) as a result.

    We ran ours on the conservative side which is what any qualified Financial Planner would advise.

    Such things as Real Estate investments were not viewed as being wise things to do due to volatility.

    “Under a safe harbor plan, you can match each eligible employee’s contribution, dollar for dollar, up to 3 percent of the employee’s compensation, and 50 cents on the dollar for the employee’s contribution that exceeds 3 percent, but not 5 percent, of the employee’s compensation. Alternatively, you can make a nonelective contribution equal to 3 percent of compensation to each eligible employee’s account.”

    http://www.dol.gov/ebsa/publications/401kplans.html

  5. Lets be Reasonable says:

    @GAJ – “As the manager of a 401k plan for my company” I was not aware that companies did this – were you managing employee 401k’s? If so, did all employees have to put their money in you 401k? Or was this money that the company put in? If the company were to go bankrupt, what would happen to the 401k? Thanks.

  6. GAJ says:

    As the manager of a 401k plan for my company with a mere 7 figures in assets it was my fiduciary responsibility to manage investments in a manner which avoided huge peaks and valleys.

    “Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.”

    Bottom line, it was my butt on the line if I “swung for the fences” with an investment and missed. Worst case I could be sued for everything I owned.

    Calpers’ managers face no such legal liability it would seem.

  7. Lets be Reasonable says:

    @Tom – Everything is watershed. Logging has long damaged creeks and rivers. The key to any agriculture is to keep it a reasonable distance away from actual water ways. I don’t know enough about this particular project, or how logging is being done in the area, but potentially, the environment could be improved if this is done right.

  8. Lets be Reasonable says:

    @Reality – yes, you have a point there regarding CalPERS saying that the higher pensions could be sustained. One of the worst results of that was that Santa Rosa, and I believe the County also, stopped putting in any employer contribution for a number of years. Only the employee portion was being sent.

  9. Tom Jones says:

    The northwest part of the county is not vineyard land, it is watershed and should be left as such.

    It is uneconomical to transport grapes from those remote locations to be crushed inland. Those roads hardly support car traffic.

    I think the real agenda is to eventually sell off parcels for estate get-aways – an inland version of Sea Ranch.

    Someone is pulling a scam that has become too big to fail.

  10. Canthisbe says:

    Mockingbird,

    How many people have actually been to Preservation Ranch to see the natural beauty of that property and the vernal pools, trees and rock formations there?

    Preservation Ranch proposes to donate 221 acres to the existing 40-acre Sonoma County Soda Springs Reserve. To increase hiking and recreation access, Preservation Ranch will also provide a public trail easement for an approximately 5 mile loop trail accessible from the Park. http://www.preservationranch.org/recreation.

    I’am guessing that more people will get to enjoy the property if Preservation Ranch’s plan is approved.

    For those who want to and can afford to, they can donate their money to preserve the north coast wilderness lands.
    One option is Bodega Land Trust: http://www.bodeganet.com/landtrust/ which is a tax-exempt 501(c) 3 organization that accepts donations to acquire costal area land and keep if forever wild. All donations are tax deductible. P.O. Box 254, Bodega, CA. 94922; Call (707) 874-9001 for info.

    (Dis)claimer: I am not related to Preservation Ranch or Bodega Land Trust but I do not believe that I have the right to tell you what to do with your property just because I would like you to do something else (or nothing) with it.

  11. Reality Check says:

    LBR,

    Of course individual freedom is accompanied by risk. Your point applies to more than just SS. I suggest you consider the alternative. I prefer empowering individuals, even if it entails some risk. For society as a whole, the superior results are clear.

    Since its was CalPers’ wizards who convinced the state that higher pensions could be funded–at no cost to taxpayers–from the superior investment returns they could deliver, excuse me for being less impressed with their genius than you apparently are.

    As to lobbyists pushing partial privatization of SS, you don’t think public employee union lobbyists weren’t doing the same to state and local governments to adopt the pensions that are causing so much pain today?

  12. Lets be Reasonable says:

    @Reality – there’s a big difference between an individual trying to manage investments and an entity like CalPERS with hundreds of investment analysts. That whole privatization of SS deal was pushed by lobbyists paid for by the deferred comp folks. An individual investment may be risky, but diversification lowers that risk. CalPERS is doing the same thing that the wealthy pay their financial analysts to do with their investments.

  13. Reality Check says:

    CalPers has no choice but to make riskier investments than pension funds traditionally made. Otherwise, they will not achieve their projected rate of return, upon which our current generous pension formulas depend.

    The irony here is that when Bush proposed letting workers put 25% of their SS tax into private accounts, the cries of “that’s too risky” were deafening. Yet, CalPers now has, as my memory recalls it, about 80% of its portfolio in risky investments.

    And, yep, why not? If heads, they win; if tails, the taxpayers make up the losses.

  14. Lets be Reasonable says:

    @Mockingbird – that was my immediate response too, but on the flip side, only 1,769 acres out of the total 20,000 are being converted to vineyard. 15,000 acres remain for timber, and about 3,000 acres will be park and/or wildlife preserve.

  15. Lets be Reasonable says:

    @GAJ – this is from their website
    .
    As the nation’s largest public pension fund with assets totaling $235.8 billion as of July 31, 2011, CalPERS investments span domestic and international markets.
    .
    The CalPERS Board of Administration has investment authority and sole fiduciary responsibility for the management of the System’s assets. The Board is guided by the CalPERS Investment Committee, management, and more than 270 staff in our Investment Office who carry out the daily activities of the investment program.
    .
    Our goal is to efficiently and effectively manage investments to achieve the highest possible return at an acceptable level of risk. In doing so, CalPERS has generated strong long-term returns.
    .
    The CalPERS investment portfolio is diversified into several asset classes, so that over the long run any weaknesses in one area are offset by gains in another. The Board follows a strategic asset allocation policy that targets the percentage of funds to be invested in each asset class.
    .
    http://www.calpers.ca.gov/index.jsp?bc=/investments/home.xml

  16. MOCKINGBIRD says:

    I biggest gripe about this is that I HATE that more of the coastal area will be desecrated by more vineyards, with more water runoff, and chemicals, flooding, and destruction of the natural beauty of this property. More gone vernal pools, trees and rock formations. The glory that makes the north coast a gem on this planet.

    Aren’t there enough vineyards? I think Calpers can find a better investment.

  17. GAJ says:

    What other hair brained schemes is CalPers investing in?

    The idea that they can reach way out there to invest in extremely risky projects simply because the taxpayer will make up any difference is ridiculous.

    I have to believe if the taxpayer weren’t their “deep pockets” CalPers would take a more conservative, and sustainable, investment approach.