How do the wealthy stay wealthy? The mandatory financial disclosure released last week by commerce secretary nominee Penny Pritzker provides a rare look at an American billionaire's entire investment portfolio. Pritzker inherited much of her wealth, long stashed in hundreds of domestic trusts and at least one offshore family trust. But she also has built a reputation as a savvy executive who has managed and built companies within her family's operations.
Toward the end of the breakup of her family's Chicago-based empire, which officially concluded in December 2011, Pritzker struck out on her own, forming PSP Capital Partners. The investment office has about 25 employees and includes investment experts, attorneys, accountants and administrative staff, all there to help her manage her wealth.
Her 184-page financial disclosure form displays a portfolio heavy in real estate, her specialty, but one that is well diversified. She has invested large amounts in mutual funds as well as tax-friendly municipal bonds. Smaller investments include stakes in oil and natural gas pipelines; gold bars; lumber companies; and even the royalty rights to the stage musical "Singin' in the Rain."
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She has taken advantage of deals available only to the superrich. She has lent herself money and taken consulting fees and salaries from some of her businesses. Blessed with creative forebears, she has benefited from offshore family tax shelters devised before the government made the practice illegal.
Pritzker's disclosure does not tally her wealth, which Forbes has estimated at $1.85 billion. It provides an estimate of the value of each asset on a given day within 31 days of the May 9 filing and estimates income from Jan. 1, 2012, until the filing. If confirmed, Pritzker has written that she will sell many of these investments to avoid any conflicts of interest.
If confirmed, Pritzker has written that she will sell many of these investments to avoid any conflicts of interest.
Mortgage backed securities
While Americans were cowering amid the financial crisis, Penny Pritzker's investment office was doing the opposite. It went shopping in the garbage heap of residential mortgage-backed securities. You might remember them as "toxic assets," the nickname given in 2008 to bundles of mortgages so ugly they brought the largest Wall Street banks to the verge of collapse. With no one willing to touch them, values sank as low as 40 or 50 cents on the dollar.
Pritzker did what few investors dared. She bought the orphaned securities in 2008 and she continues to hold most of them, according to a source close to the family. What remains in her portfolio is worth at least $46.6 million. They have some of the ugliest names of the financial crisis attached to them, including Countrywide and Bear Stearns.
"The world was collapsing at the time, and brokers were afraid to sell them" to anyone, said Lewis Altfest, a private wealth manager, who also chose the unique path of buying the securities on his own. "It took a lot of work" to analyze them and also required having a close relationship with a broker with mortgage-backed securities to sell, he said.
Pritzker, of course, has a staff involved in making decisions. And she wasn't a newcomer to real estate, banking or credit.
In addition to the securities Pritzker bought, she supersized her exposure by investing in funds, including a bond hedge fund, the Doubleline Opportunistic Income LP, and bond mutual fund, the Doubleline Total Return Bond Fund, that stood out for their large investments in private-label mortgage-backed securities.
Besides her mortgage-security purchases, Pritzker made other investments on the back end of the financial crisis. When the U.S. Treasury bailed out banks with cash, known as TARP money, it received preferred stock in them in exchange. As the Treasury has been selling the preferred stock, Pritzker bought an amount worth at least $4.46 million. Interest rates on those shares range from 5 percent to 13.8 percent. .
Penny Pritzker's specialty is real estate. The first business she launched for her family, in 1987 and now called Vi, runs upscale retirement communities.
According to her financial disclosure form, her stock in Vi's parent company, CC Development Group Inc., is worth $25 million to $50 million and generated more than $5 million in dividends during the reporting period.
In 1991, when Ronald Galowich retired as director of the Pritzkers' nonhotel land holdings, her uncle, Jay Pritzker, put Penny in charge. The effort became Pritzker Realty Group, and it expanded quickly. She started with apartment buildings then built entire neighborhoods, such as Baldwin Park in Orlando, Fla., and shopping centers.
Her assets include income from or stakes in many legacy projects developed by Pritzker Realty Group or other family businesses, including references to the Park Tower development on Michigan Avenue, home to a Hyatt, and condos in the Gold Coast's Sandburg Village, the 1979 apartment-to-condo conversion her grandfather, A.N. Pritzker, helped finance.
Since starting her own investment firm, her real estate holdings have expanded to include a $5 million to $25 million stake in Artemis Real Estate Partners, which owns real estate mostly in coastal states, ranging from 13 office and industrial buildings in and near Charlotte, N.C., to a self-storage facility in San Jose, Calif.