Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
July 12, 1999 01:00 AM

LAZARD PROBLEMS: INVESTORS LOOK FOR A WAY OUT; LAZARD'S OUSTER OF ARTHUR SOLOMON SPURS THE ACTION

Ricki Fulman
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    NEW YORK -- Institutional investors in the once high-flying Lazard Freres Real Estate Investors funds hired a lawyer following the forced departure of Arthur Solomon.

    Mr. Solomon was the Lazard partner who ran the $2.3 billion megafunds.

    In addition, sources said the $46 billion Pennsylvania Public School Employees' Retirement System, Harrisburg, has put future commitments to the Lazard Freres funds on hold.

    Around 80% of the pension funds that are limited partners in the Lazard real estate partnerships agreed to organize, naming General Motors Investment Management Co., New York, their representative to communicate with Lazard executives, sources said. Tom Dobrowski, GM's managing director of real estate and alternative investments, didn't return calls seeking comment.

    Investors' concerns

    The pension fund investors have been concerned about performance and about who is going to run the funds. Several have said privately they would like to get out of their commitments if they could. They have hired a lawyer to determine if the management change gives them an out. One source said there are mechanisms for replacing Lazard Freres as manager, but that no one has made a move in that direction yet.

    Meanwhile, the limited partners also are trying to hire an outside auditor to determine the true valuations.

    Mark Barnard, director of private investments for the $12 billion endowment of Howard Hughes Medical Research Institute, Annapolis, Md., said his concern is the health of the companies in the LF Strategic Realty portfolios, and whether they are well-capitalized.

    "It will take time to see if they (Lazard) made good investments," observed Mr. Barnard.

    The limited partners are bound by their contracts with Lazard to fund their commitments as they are called, or pay big penalties.

    Matthew Lustig, managing director and acting chief executive officer of the Lazard real estate funds, said 21/2 months after Mr. Solomon was ousted, Lazard made a "picture perfect" capital call for $355 million.

    "All the money came in either early or on time, and we were very pleased," Mr. Lustig said.

    People with knowledge of the matter said the $800 million LF Strategic Realty Investors I is 90% invested, and the $1.52 billion LF Strategic Realty Investors II has invested $1.3 billion to date.

    Mr. Solomon ran Lazard Freres' real estate business for 11 years, and raised billions from the nation's biggest pension funds. He was ousted in April, reportedly over differences in how the funds should be invested, and the valuations of those investments.

    Neither Mr. Solomon nor Lazard executives would discuss the reasons. Nor would Lazard say how the funds have performed in 1999.

    But sources said Lazard has been making accounting changes in the way it values its real estate investments, marking the public investments to market, which made the first-quarter performance reports look bad because of a lagging real estate market. No change has yet been made in the valuation of the private investments.

    Major concern

    A major concern for the partners is the management changes. Mr. Lustig said Lazard has been conducting a search to find a successor to Mr. Solomon, in hopes of naming him or her by the end of the summer.

    Tom Hassard, manager of the real estate program at the $34 billion Virginia Retirement Systems, Richmond, said the system has funded about 90% of its commitment to LF II at this point. "We're concerned when personnel comes and goes, and we expect them to manage it," he emphasized. He added that as far as he can tell, there is no contract escape clause.

    Patrick Mitchell, chief investment officer at the $101 billion California State Teachers' Retirement System, Sacramento, concurred, saying the limited partners are legally bound to continue their contracts with Lazard. CalSTRS invested only in the first fund, and the entire $150 million commitment has been funded, Mr. Mitchell said.

    A limited partner who had attended investor meetings said there had been a power struggle between Mr. Solomon and the top brass at Lazard. He recalled that at one meeting, Lazard executives had shown charts illustrating how Mr. Solomon had committed $1.608 billion to investments when he only had $1.52 billion available to spend. "In a technical sense he overcommitted," the limited partner said.

    But another limited partner said the fund was allowed to leverage up to 60%, so it could overcommit on investments. "This kind of thing occurs every day in these opportunity funds," he said.

    Another member of the real estate team, Murry Gunty, also was terminated, while a third, Rob Freeman, resigned.

    Many limited partners who were fans of Mr. Solomon's were dismayed that he was gone, and so quickly.

    After the ouster, Mr. Solomon sued Lazard for breach of fiduciary duty and defamation of character. In June, the parties settled, but terms were not disclosed.

    In addition to those that were mentioned above, limited partners in the Lazard funds include Aluminum Co. of America; Allstate Corp.; AT&T Co.; Bell Atlantic Master Trust; Chase Capital Partners; Chrysler Corp.; Public Employees Retirement Association of Colorado; Government of Singapore Investment Corp.; IBM Corp.; Illinois Municipal Retirement Fund; Illinois State Board of Investment; New York State Common Retirement Fund; Polaroid Corp.; Utah State Retirement System; State of Wisconsin Investment Board; and the International Bank for Reconstruction and Development.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit