Bloomberg News

Dallas Museum Seeks to Shade Pension-Backed Tower’s Glare

May 02, 2012

The Nasher Sculpture Center in Dallas. Photographer: Tony Gutierrez/AP

The Nasher Sculpture Center in Dallas. Photographer: Tony Gutierrez/AP

A Dallas pension fund’s glass-skinned apartment tower may need costly changes after the Nasher Sculpture Center, home to works by Degas, Picasso and Rodin, complained of damaging light and heat reflected by the building.

The dispute over the 42-floor Museum Tower highlights the risks taken by the $3.1 billion Dallas Police & Fire Pension System. With 52 percent of assets invested in recent years in such alternatives as the $200 million tower and the “American Idol” production company, it takes more risk than any U.S. public retirement plan, according to researcher Preqin Ltd.

With the benchmark Standard & Poor’s 500 Index (SPX) of equities producing a 1.2 percent loss, including reinvested dividends, for the five years through 2011, pension managers have turned to hedge funds, private equity and real estate to boost returns. The Dallas plan has taken that approach to an extreme, said Andrew Biggs, a former deputy commissioner of the U.S. Social Security Administration.

“They say risk doesn’t matter to the government, but it does,” said Biggs, who has studied pensions as a resident scholar at the American Enterprise Institute in Washington, a business-backed research organization. “I don’t think anyone would say you should have half your assets in alternatives.”

Potential Cost

The strategy raises the potential cost for Dallas taxpayers, who back the pension, and more than 9,100 police officers, firefighters and retirees, who might have to make higher contributions or accept lower benefits if the fund’s investments turn out to be losers.

Units in the luxury condominium, designed by architect Scott Johnson, are being quoted at $1.2 million to $4.1 million, according to Dallas Realtor Rich Patterson’s website. Marketers tout nearby amenities such as the Nasher. The neighborhood also is home to the Dallas Museum of Art and the Morton H. Meyerson Symphony Center.

Auguste Rodin, Pablo Picasso, Edgar Degas and Willem de Kooning are among the artists represented in the Nasher’s galleries. Started by the late Ray Nasher, a retail mall developer, the center’s core collection is drawn from his acquisitions that began in the 1950s. Designed by Pritzker Prize winner Renzo Piano and Peter Walker, the center opened in 2003.

Glare From Glass

After construction workers began attaching reflective glass last year to the Museum Tower across the street, Nasher officials grew concerned about damage to art and plants in the sculpture garden. They relocated some pieces to escape the glare and erected special shades for others, according to local news reports. Work is scheduled to be completed later this year.

The tower’s pension-fund owner and Nasher officials are negotiating to find a resolution to the glare, according to a statement on the fund’s website by George Tomasovic, a firefighter who leads the retirement plan’s trustees.

During the negotiations, both sides have agreed to not comment to reporters, he said. The agreement was confirmed by Kristen Gibbins, a Nasher spokeswoman.

“Both parties are working in good faith to find a solution,” Tom Luce, a Dallas lawyer who is helping to facilitate an agreement, said by e-mail. Both sides are referring requests for comment to the attorney.

Committed Neighbor

The pension may have to take action to correct the glare, according to Tomasovic. Local news accounts have “unfairly and inaccurately described our commitment to being a good neighbor and resolve the reflection issue,” he said in a video on the fund’s website. He said the fund hopes to “preserve the architectural integrity of both properties.”

Consultants have been hired to study the issues, Tomasovic said, and those reports should be complete by mid-May. He expects a solution within a few months.

“It’s a stunningly beautiful building that’s bringing luxury residential living to the Dallas arts district,” Tomasovic said in the recorded message, which has since been removed from the website. “A lot of people are saying when it is finished it will be one of the most prestigious residential addresses in the country.”

The fund’s 2010 net return on invested assets of about 11 percent, while exceeding the plan’s 8.5 percent assumed rate, fell from almost 16 percent in 2009, according to its most- recent financial report. The gains followed years of losses that came after the drop in equities spurred by the credit-market collapse that began in 2007.

‘Enough Return’

“If you get those kind of returns, it looks like it justifies the risk,” said Lynn Turner, a former chief accountant with the U.S. Securities and Exchange Commission who has studied public-pension issues. “The question is, are they getting enough return for the risk they are taking?”

The plan had almost 80 percent of assets needed to cover projected liabilities at the end of 2010, down from about 82 percent a year earlier. The average state pension had a funding ratio of about 74 percent in fiscal 2010, according to data compiled by Bloomberg. Actuaries generally consider 80 percent adequate to meet future obligations to retirees.

In 2010, Money Management Letter cited the Dallas plan as “one of the best-diversified funds in the U.S.” after the pension embarked on its new strategy a year earlier. The newsletter mentioned investments in Australian crops, Uruguayan timber and “a stake in the company that produces ‘American Idol.’” The fund also has backed rebuilding Dallas-area roads.

Reducing Risk

The pension fund’s overseers decided to diversify in 2006 to “reduce public equity risk,” according to a memo put out by the plan. The board of trustees based the decision on studies that projected safer and greater returns from other types of assets compared with publicly traded shares.

For all the extra risk of holding such alternative assets, the fund would have beaten them in 2010 by concentrating on its stock and bond portfolios, which returned 17 percent and 16 percent, respectively. The S&P 500 had a total return of about 15 percent that year. The plan’s investments in real estate gained almost 3.1 percent and private equity delivered about 12 percent, according to the 2010 annual report.

Last year, the fund asked members to approve benefit limits after projections showed assets “would deteriorate over the next few years to levels that threatened the system’s ability” to meet future obligations, according to a July 2011 letter in the fund’s annual report.

Even after the members approved the changes, the fund’s liabilities exceeded assets to pay benefits by $885.5 million, according to the report.

“Stuff like that seems silly to me,” said Biggs. “Their jobs is to protect the taxpayers and the pensioners.”

To contact the reporter on this story: Darrell Preston in Dallas at dpreston@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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