Pricing risk is something on the forefront of most financiers' minds as they attempt to circumnavigate the turbulent waters of the credit crunch.
However analysts and executives at Los Angeles-based Colony Capital must have been working overtime as PERE went to press – after Paris' only top-flight soccer club, Paris St Germain, fought off relegation to the lower divisions.
At the start of this year, Colony announced it was increasing its stake in the club to 62.5 percent after French investment firm Butler Capital Partners sold its 30 percent share. At the time Sébastien Bazin, chairman of Colony Capital Europe, declared that the private equity real estate firm was committed to a longterm relationship with the club saying: “We intend to continue rebuilding so PSG is rapidly restored to its rightful rank.”
However on May 18, all eyes were on PSG as they battled to stay in the Ligue 1, France's equivalent to the English Premier League. Just one point separated PSG and two other teams from being relegated along with the two bottom-placed clubs, Strasbourg and Metz.
If PSG were relegated, it would have been the first time it had been relegated since reaching the top flight in 1974 and would have left Paris as the only European capital without at least one football team in their country's top division. In fact, emotions surrounding the potential relegation were running so high that in April, two-year PSG president Alain Cayzac resigned owing to the team's poor performance. Bazin was part of those crisis talks.
In the end PSG's soccer skills won through, with the club securing a 2-1 away win against Sochaux. It was, one senior executive told PERE, something Colony was confident would happen.
However the episode does beg the question: Just how does a private equity real estate firm price risk for such fickle contingencies as the performance of soccer players?
Colony seems to have an appetite for, shall we say, idiosyncratic risks, not least in relation to their most recent acquisition – the $25 million debt on Michael Jackson's Neverland ranch.