Richard (Blum) Ellis’ North Coast Pension Booze
by Will Parrish, March 24, 2010
Darwin Bond-Graham contributed to this story.
In March 2007, a multi-billion dollar investment firm funded primarily by the United States' two largest public pension funds – the California Public Employee Retirement System (CalPERS) and the California State Retirement System (CalSTRS) – bought out one of the Anderson Valleys' three big wine-grape growers, Duckhorn Vineyards. Duckhorn is best known in the Valley for the exorbitantly pricey pinot noirs it cultivates under its “Goldeneye” label, as well as for its managers' propensity for illegally treating the local watershed as if it were their own private storage basin. The $250 million purchase of Duckhorn by GI Partners, as the firm is named, marked the continuation of a trend that began in 2002.
That was the year CalPERS became the lead investor in another large Anderson Valley vineyard owner, the arguably even more ecologically destructive AltaTech Viticulture of Napa County (formerly Premier Pacific Vineyards). CalPERS' initial investment of $100 million in AltaTech marked the first time it had ever purchased a stake in an agribusiness. The pension later added an additional $100 million investment in the company. Today, AltaTech claims to own the largest vineyard portfolio in the country with acreage in Washington and Oregon, and holdings running up California's coastal zones from Santa Barbara to a massive 30-square-mile slice of the Gualala River watershed on the Sonoma-Mendocino border.
Among the various things these bourgeoisie pension booze enterprises have in common, one is that they are financially and administratively tied to the world's largest real estate brokerage firm: CB Richard Ellis (CBRE).
As readers of the previous three installments of this four-part series are likely to recall, CBRE's owner and chairman is none other than the San Francisco-based financier Richard Blum, husband of US Senator Dianne Feinstein. As the overlord of a financial empire that encompasses tens of billions of dollars of investments in a staggering range of business enterprises, Blum has distinguished himself as one of the global capitalist economy's reining siphoners-in-chief of public money. His uncanny ability to leverage large pools of taxpayer and pension dollars has depended in large part on the virtually unrivaled influence he peddles in the Democratic Party, both statewide and nationally, as well as in specific Congressional districts.
In 2002, the San Francisco Chronicle and other California media took note of a handful of fishy investments CalPERS' investment managers had made in the pet projects of several Democratic Party figures. Two of the three main principles these stories named were Blum and fellow financier Ronald “The Poster Child For The Ills of Political Donations and Business” Burkle (the nickname is self-appointed). Looking for the huge sorts of returns that private equity firms were generating, CalPERS invested $560 million in Burkle's operation, Yucaipa Companies, in 2001. There was a flip side to the "strategic partnership" that would develop between CalPERS and Yucaipa, though. More than just CalPERS seeking entry into the lucrative realm of private equity, private equity was seeking to crack the big piggy bank of public pensions, which represent hundreds of billions in wealth that can be leveraged for private gain.
After CalPERS' injection of cash into Yucaipa, Blum convinced Burkle to invest $50 million of his pension pot in IndTV, a cable news channel founded by their mutual friend, former US Vice President Al Gore. Blum Capital Partners had a $20 million investment in Gore's company at the time. Burkle's own private equity firm, which employs Bill Clinton as its so-called “rain man” (in reference to the former prez' uncanny ability to rein in sweetheart investment deals on Burkle's behalf), ultimately bought into IndTV as a 50-50 partner with Blum. In the wake of this episode, the alt-weekly Sacramento News & Review pointedly labeled CalPERS as “the Democratic Party's personal piggybank,” owing to the fact that its 13-member investment board is dominated by the state's Democratic Party apparatus.
The third main character in these corporate media stories was a man named Richard Wollack, who happens to be co-chairman of the aforementioned AltaTech Vineyards -- and himself no stranger to the time-honored practice of rendering elected political executives wholly owned subsidiaries of one's personal economic interests. In the months immediately prior to CalPERS' unprecedented $100 million investment in AltaTech, the enterprising Wollack lavished enormous donations on Gov. Gray Davis' reelection campaign. Wollack also hosted a fundraiser party for the Governor at his private estate, which raised tens of thousands. Both Wollack and Davis' press people brushed off the allegations of a conflict of interest vis-a-vis the campaign contributions and the subsequent award of CalPERS funding, noting that Davis does not control the pension's investments; he only appoints many of the people who do.
The “personal piggybank” story, however, is worthy of further investigation – particularly in light of its direct links to Mendo. In recent decades, public pension funds have increasingly been conscripted to the forces of economic “structural adjustment”: the reining wizards of hedge funds, credit markets, venture capital, real estate speculation, and all the other games played with billion dollar pots of money. The ultimate game changer in this regard was 1984's Proposition 21, a ballot initiative that permitted CalPERS and California's other public pensions to invest huge portions of their portfolios in stocks. Since that time, CalPERS shifted from a relatively cautious public pension fund to what might best be described as an activist equity pool, with a whopping 54 percent of the roughly $191 billion in its coffers staked to the private equity market.
Far from representing "socialism," then, as their critics on the far right proclaim, public pension have become lynchpins of the neo-liberal political economy, making or breaking fortunes in the "private" market to a degree matched only by the world's largest national economies.
One of the finance capitalists who has seized on this opportunity to expand his fortune by tapping into the newly “liquid” multi-billion dollar pots of public money is, of course, Richard Blum. Among the primary investors in Blum Capital Partners are a wide range of pension funds, including CALPERS. One of Blum's other private equity firms, the enormous Newbridge Capital, has also raised hundreds of millions of dollars from various public pensions. CalSTRS has an unusually large stake in Blum Capital Partners, more than $75 million – its fourth largest in any company. California's public teachers will be proud to know, then, that they own a roughly one percent stake in Richard Blum's main personal investment vehicle – an enterprise that has been invested in the “reconstruction” of Iraq as well as its destruction, via a Mexican maquiladora that builds weapons components for the Department of Defense, among the savory enterprises the equity firm is involved in.
Blum has a history of steering pension money into his personal coffers in still more direct ways. For an eight-year span of the 1990s, he personally managed a chunk of the Southern California Carpenters union's pension fund, a post to which he was hired by a man named Ronald Tutor -- a colorful Democratic Party heavyweight. Gray Davis frequently borrowed Tutor's personal jet in the course of bustling around to his stops on the 2002 campaign trail. Tutor went on to become Blum's business partner in a multi-billion dollar construction firm named Perini Corporation, which some readers may recall from reading Part 1 of this series four-part series as one of the pair of construction firms that Dianne Feinstein routinely funneled eight-figure contracts to during her tenure on the US Senate's Military Appropriations Committee from 2001-2007.
During his stint with the carpenters union, Blum received a staggering $54 million in advisory fees from Tutor and the pension fund's other co-chairman, even though he handled only a small part of the pension's overall $2 billion pot. Blum also invested $26 million of the pension's money directly in his own company, Perini, at a time when the company was barely keeping its head above water. Ultimately, he left his union post after three of its rank-and-file members brought a civil suit, alleging that he was heavily overcompensated and that he cost union members millions of dollars by illicitly staking their money in the then-struggling Perini.
Blum was also a leading force behind the privatization of the University of California's pension fund. That effort was chiefly spearheaded by UC Regent Gerald Parsky, under whose guidance the university abandoned its well-established in-house management in favor of a private investment firm closely affiliated with the California Republican Party, of which Parsky has long been a leader. At the March 2003 Regents meeting, though, the Democratic Party stalwart Blum provided key backing to Parsky's privatization push, in an exchange noted by UC Berkeley Professor Emeritus of Physics Charles Schwartz.
"Gerry, this is Dick,” Blum stated. “I just think that CalPERS has the ability and demonstrated it to have large enough staff in-house to invest wisely and keep track of this stuff. I don't think we can do it for the University on our own, so that we need to either farm this out to advisors who can tell us who we want to place our money with, and/or work out something with CalPERS."
Parsky responded, "Those two things, Dick, are exactly what we are thinking about."
It is particularly telling how Goldeneye Vineyards came to reside under Blum's personal financial umbrella. In 2000, CalPERS selected CB Richard Ellis to manage a new $500 million real estate and technology fund. Four months later, Blum Capital Partners made a successful bid to buy CBRE, soon turning it into the world's largest real estate firm through a string of high-profile buyouts and mergers. CBRE's very first large-scale project under Blum's ownership, however, was the founding of a so-called Real Estate Investment Trust (REIT) named GI Partners -- now the owner of Duckhorn Vineyards. The purpose of spinning off GI Partners as a nominally separate company from CB Richard Ellis was to invest in – what else? – real estate and technology ventures. Within weeks of GI Partners' founding, CBRE plopped the entirety of its half-billion CalPERS investment pool into the company. For its part, CBRE staked $26.1 million of its own money in the firm.
GI Partners' first-ever investment was in a company presided over, not surprisingly, by a leading executive at CB Richard Ellis. The executive in question is Michael Foust, who serves simultaneously as co-chairman of GI Partners and the firm's initial start-up company, Digital Realty Trust. GI Partners' other co-founder, Rick Magnuson, has been a managing director of CBRE Investors – CBRE's private equity arm, which controls a whopping $34 billion of investment capital – since 1999. When GI Partners bought out Duckhorn Vineyards, Magnuson came on board as one of Duckhorn's directors.
In the past several years, CalPERS has brought its total investment in GI Partners to $1.2 billion. Yet, while the company continues to identify itself as a separate entity from CBRE, its filings with the Securities & Exchange Commission show that CBRE Investors has been the sole manager of GI Partners' investments all along -- those from CalPERS and otherwise. Meanwhile, at least one of the companies GI Partners has founded, the Irvine, CA-based LincGroup, has contracted extensively with CBRE. The upshot is that CBRE has effectively steered a chunk of the public pension funds its manages through an elaborate investment chain and back into its own coffers, while also conveniently enriching its own top executives by furnishing them cushy seats on various corporate boards -- such as that of Duckhorn Vineyards.
Perhaps it was the Duckhorn's management's financially philosophy that attracted GI Partners to it. As those managers explained in a newsletter to shareholders in 2000, “We have chosen as our first topic of discussion the reality of the business — cash. Everything we do eventually finds its way back to this common denominator. That is, cash in and cash out. … At Duckhorn Vineyards, we earn approximately 24% cash profit. … Our bank, Bank of America, is more willing to support our growth because of our relatively high cash profit levels, our confirmed reinvestment of earnings, and our shareholder support.”
This emphasis on profit maximization is perhaps best reflected in the company's purely extractive mode of operation, best characterized by their reckless siphoning out of the Navarro River watershed. Several years ago, the group Navarro River Watershed Protection Association found that Goldeneye was building several illegal holding tanks at the junction of the Rancheria Creek, Anderson Creek, and Indian Creek. It also had a pipe directly in Indian Creek. Despite the fact that the Watershed Protection Association complained to the State Water Control Board's Division of Water Rights, Duckhorn avoided any sanction. In several documented instances, the company's workers have also illegally trucked water from this site to its various other thirsty wine-grape operations in the Valley, displacing hundreds of thousands of gallons of water in the process.
In 2000, when archeological surveys revealed that a Pomo burial site was located on Duckhorn's land on the east bank of the Rancheria, just outside downtown Philo, Duckhorn bulldozed the area without conducting additional survey work and without an archeologist present. They later built a pond right on top of the site, thus foreclosing on the possibility of more survey work being conducted. As with water theft, desecration of culturally indispensable American Indian sites seems to be a hallmark of the local wine industry. An outfit from Spain named Cordineu, the world's third largest wine company, is currently attempting to gain approval for a 173-acre winery in the Gualala River watershed, which would go atop the archeological site of an Indian trading village. In Laytonville, a prospective new vineyard just west off Highway 101 has closed off the Cahto's access to one of their sacred sites in the foothills, despite the best efforts of the chairman and vice chairman of the local rancheria.
With all of this background in mind, local residents can feel proud in knowing that their home company's Duckhorn 2007 Sauvignon Blanc was the vintage of choice at United States Senate’s luncheon in honor of President Obama’s inauguration in January, organized by Dianne Feinstein. So, if you figure Feinstein's Senate committee purchased the vino for $25 a bottle, and the roughly 200 people who attended the inauguration party downed a collective 50 bottles (a modest estimate for that crowd), that means Duckhorn made $1,250 in revenue off the senatorial tet-a-tet. Figure Feinstein herself downed a half-bottle on her own, and that means she drank a $12.50 contribution to CBRE Investors' personal coffers, getting to revel in a “vibrant acidity balanced by toasted oak” that furnishes a “rich mouthfeel” (quotes courtesy of the wine's promotional literature) in the process.
Not a bad gig if you can get it.
The other case of local pension booze investing, AltaTech Vineyards, arguably stands to be even more ecologically and socially destructive. In this regard, it is worth singling out the company's nearly 20,000-acre real estate and vineyard conversion project in the Gualala River watershed, which would be perhaps the single most ecologically destructive real estate project on the North Coast since the reigns of Maxxam Corporation and Louisiana-Pacific. This massive ecological engineering project would involve 1,683 acres of wine grapes, more than 80 miles of six-foot high fencing that would fragment wildlife habitat across the majority of the parcel, 90 miles of road, a gravel mining operation, and .of course the industrial-scale water diversions necessary to fill the project's proposed 40 reservoirs.
We will explore this project in greater detail, including its status in the regulatory process, in a future edition of the AVA. For now, we'll limit ourselves to noting that AltaTech co-founder Richard Wollack is one of CB Richard Ellis' founders. In fact, Wollack was CBRE's chairman immediately prior to Richard Blum Wollack, who has donated nearly $10,000 to Dianne Feinstein's Senate campaigns since 2000, remained a CBRE director until AltaTech Vineyards secured CALPERS' second $100 million investment. Not surprisingly, CBRE is one of AltaTech's primary investors, having given the company at least $1 million in what essentially amounted to “matching funds” to sweeten the pot for the the initial CALPERS money.
In the initial installment of this now-completed four-part series, we wrote that the “economic and political policies promoted by Richard C. Blum and associates, including Senator Feinstein and other leaders of both the Democratic and Republican Parties have locked nations and peoples across the planet into a system of de facto colonialism whereby their lands and destinies are controlled by distant, debt-holding banks and hedge funds.” This sort of colonialism, however, is not typically so distant as our original statement implies. To glimpse it, we need look no further than where we live, in which case its manifestations include the scalping of virtually every ridgetop in the Anderson Valley; the sterilization of tens of thousands of acres of previously vibrant soils with petrochemicals; the destruction of watersheds and fisheries that once provided for subsistence; the fracturing of communities; the displacement of potentially more sustainable and equitable economic models; the foreclosure of alternative futures. The Navarro River, for instance, no longer runs in the summer-time: a condition that, if allowed to endure, will ensure that the watershed never recovers from its initial catastrophic damage by overlogging.
Despite the fact that the bottom has fallen out of the premium wine industry in recent months, vineyards continue to expand onto new swaths of Mendocino County acreage. Most of these lands are indeed owned by distant banks and investment funds spearheaded by people like Richard Blum, the very same man most responsible for the structural adjustment of the University of California and so many other cases of economic immiseration the world over. In recent months, by way of their growing resistance movement, hundreds of UC students have effectively shown us a proper way of responding. We would do well to heed them.
Contact Will Parrish at wparrish(a)riseup.net and Darwin Bond-Graham at darwin(a)riseup.net.