Brando’s private island among state investments

portfolio: Financing state pension fund can require some creative, star-studded holdings

Northwest News NetworkJuly 20, 2012 

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.

It’s the Washington State Investment Board, and its job is to maximize returns on an $85 billion investment portfolio. To do that, the board invests in some very exotic places.

Such as Tahiti.

“It’s an astoundingly beautiful place,” said Steve Draper, who works for the board. “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. He’s a Washington state investment officer. And his portfolio 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 said. “But out of a courtesy I took the meeting and it became immediately interesting.”

The developer, Richard Bailey, 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.” Historically, Tetiaroa was a vacation spot for Tahitian royalty.

In 2007, after two years of due diligence, the Washington State Investment Board committed approximately $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.

Bailey said it will be the most eco-friendly resort in the world – a legacy of the late actor, who died in 2004.

“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 said.

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,” said Chief Investment Officer Gary Bruebaker.

Also cement plants in India, grocery stores in Romania and shopping centers in Brazil. Global emerging markets are a key focus these days at the investment board.

That’s because the board has to fund the pensions of more than 400,000 current and future state retirees, and a traditional mix of stocks and bonds isn’t always enough to hit the Legislature’s bullish target of nearly 8 percent returns. If the board doesn’t hit its target rate of return, taxpayers and pension plan members have to pay more into the system.

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 Bruebaker comes in.

“You saw the movie ‘Jerry McGuire?’ You remember the part ‘show the money?’ That’s me,” he said.

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 said.

That stat comes from Department of Retirement Systems data that show 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,” said Tofferi, who retired from King County Library System.

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 recently sent an investment officer to scout real estate in Nigeria, but WSIB Executive Director Theresa Whitmarsh said it is taking a go-slow approach to investment in that country.

“It actually is an attractive area to be, but it is very much a frontier market and comes with a lot of risk so we’re going very slowly and very carefully,” she said.

According to the board, 42 percent of its public retirement plan investment holdings are international. 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.

The board’s administrative expenses, including travel, are paid with investment returns.

Senate Majority Leader Lisa Brown sits on the investment board. The Spokane Democrat said 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 said. “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.”

Austin Jenkins is a reporter for the Public Radio Northwest News Network. His work airs on KPLU, KUOW and KVTI-FM, among other public radio stations. Contact him at ajenkins@kuow.org.

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