With Large Bid for Parking Authority, Pittsburgh Pension May Live Another Day

A $452 million bid for the city’s parking system, if approved by City Council, would allow Pittsburgh’s 25% funded pension to avoid the fate of being taken over by the state.

(September 21, 2010) – Pittsburgh’s pension may live to see another day.

On Monday, Pittsburgh Mayor Luke Ravenstahl opened final bids for the city’s parking system. The winner: a group led by investment giant J.P. Morgan and LAZ Parking, which offered to pay the City of Pittsburgh $451.7 million to lease the city’s public parking garages and metered spaces for the next 50 years. If approved by City Council, the funds would be used, among other things, to fend off a state takeover of the city pension system.

According to Ravenstahl, the city needed $330 million to both pay off the parking system’s debts, as well as top-up the city’s pension system, which will be taken over by the state at year-end if $220 million is not injected into it. This figure would bring the city’s current $239 million pension above a 50% funding status.

The Mayor and other officials were clearly happy with the result. There had been a previous round of bidding, but when the offers from two entities came within 10% of each other on September 20, they were asked to return with new bids. According to figures read at a press conference held Monday afternoon, this resulted in a bid more than $40 million higher than originally proposed by the eventual winner.

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“The bid exceeded my wildest expectations,” Ravenstahl said in a press conference following the opening of the final two bids. “It clearly solves the immediate problem. The question now is what to do with the extra $110 million.”

The auction winner – a consortium backed by J.P Morgan and Connecticut-based parking operator LAZ Parking – was notified by phone of its victory, as was the losing bidder, EQT Partners. Carlyle Infrastructure Partners was not allowed to bid in this final round, as its original bid of $311 million was nearly $80 million less than the other two in the opening round.

The action now turns to the City Council. By November 1, the nine-person council – rife with Ravenstahl’s political opponents who may wish to deny the young Mayor a victory of this size – must approve the deal for the bid to stand. According to local sources, five members of council and City Controller Michael Lamb have expressed concern about the mayor’s lease deal. “Alternative plans are likely to be floated,” Ravenstahl told ai5000. “However, none do what we’re trying to do here – make a lump-sum payment into the pension to avoid the state taking it over.”

Surprisingly, no bids came from other pension funds or asset owners, which as of late have been very active in the infrastructure space. According to Morgan Stanley’s J. Perry Offutt, who was tapped by the Parking Authority to oversee the deal, pension funds have yet to get into the parking market. “If you came back in a year, you’d likely see the large pension funds bidding on something like this,” he said after the press conference.

To contact the ai5000 editors of this story: Kip McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a> and Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>

China's $300 billion sovereign wealth fund has stated it "has doubts" in investing in old line automakers and must instead invest in relatively conservative and stable industries "that will survive 50 years from now."

(September 21, 2010) — While not naming specific companies, the general manager of the $300 billion China Investment Corp (CIC) said the fund will be cautious about investing in the traditional auto industry, Reuters is reporting.

Speaking at an automotive forum in Chengdu, China, the CIC’s general manager Gao Xiqing said that during the financial crisis, the sovereign wealth fund was approached by a variety of carmakers about potential investments.

“An investment fund like us has to invest in relatively conservative and stable industries, said Gao, according to Reuters. “We have to invest in companies that will survive 50 years from now.” While not excluding investments in local Chinese companies listed overseas, Gao added that the focus of the CIC — set up in September 2007 — is primarily on foreign assets. “The responsibility that the country gave us is not to invest (mainly) in mainland Chinese companies, but we can invest in Chinese companies listed overseas, such as those with H shares,” he said, referring to mainland Chinese companies listed in Hong Kong.

In recent news, the Wall Street Journal reported that emerging markets are a burgeoning focus for the CIC as returns in mature fixed-income markets such as the US and Europe are likely to remain low for roughly the next 10 years.

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“…we are going to see a long period of very low growth, low rates, and low return in mature world (economies) like the US and Europe,” Ludwig He, CIC’s managing director and head of public markets investment, said at the Latin America China Investors Forum, according to the WSJ. He stressed the importance for emerging countries to have a stable bond market to lure foreign investors by offering protection against rising prices, putting a spotlight on Brazil, where the inflation-linked bond market has helped to ameliorate investor fears about market volatility. He added that global investor interest in Latin American currencies may slowly rise in the long term.

As part of its diversified global asset allocation, Ludwig noted that the CIC has a “very small amount” of investment in Brazil’s inflation-linked bond market and also invests in Japanese government bonds, the WSJ reported.

To contact the aiCIO editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742