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by Cyril Penn | October 13, 2011 | 4:00 PM

The breaking news about the relationship between the California Public Employees' Retirement System and Premier Pacific Vineyards raises questions but nobody seems to know what’s next.

As one industry observer put, “There’s much buzzing around about it, everybody smelling blood in the water, but no one seems to know who’s driving the bus.”

As reported in the Wine Business Insider newsletter last week, CalPERS decided that effective the end of this year, PPV will no longer be managing the vineyards PPV developed for CalPERS.

Via an email to clients, PPV CEO Richard Wollack said an unnamed replacement manager would be assuming responsibilities for the assets in January, adding: “Be assured that through the end of this year we and our employees are committed to maintain the highest level of quality in performance to our customers and interaction with vendors and all parties with whom we interact.”

Wollack has declined to speak with reporters but it sounds like PPV’s employees are in the dark as to who the management contract for the vineyards is being awarded to. We haven't even heard any rumors yet about who the new management might be.  It stands to reason that if a new vineyard management company were already being considered, word of who that could be might be circulating.

The joint venture between CalPERS, the nation's largest pension and health-care program, and PPV was the first of its kind. The first phase of the partnership began in 2000 with a combination of a $100 million investment from CalPERS and a $10 million outlay from PPV. Then in 2004, an additional $100 million from CalPERS was added to begin the second phase of operations.

It seemed like a great idea at the time.

So what the heck is CalPERS thinking?

Wayne Davis, a spokesman for CalPERS, confirmed that the two vineyard investments totaling $200 million were valued at $68.1 million and $53.9 million respectively as of March 31, 2011. – that’s public information. So that $200 million invested is worth $122 million – maybe. Davis did not address any detailed questions about what CalPERs is planning to do with its investment, other than to confirm that the management relationship with PPV is "winding down."

The investment is a tiny drop in the bucket for CalPERS, but expect to see news headlines along the lines of, “California State Employees Lose Millions in Risky Vineyard Investment.”

PPV’s original intention was to develop high-end vineyards and flip them at a profit. There was a huge demand for high end vineyards at that time - but the economic changes that occurred with the recession affected sales of expensive wines. Meanwhile, PPV shifted its strategy to selling grapes and vineyard leases.

Maybe CalPERS will hang onto the vineyards for awhile. Eventually they’re value is sure to go up, up, up. – They’re super fancy, tricked-out vineyards.

Development costs are high and there are a finite number of top rate places left to plant great vineyards, though. If somebody bought them now, they’d be getting a nice discount. Maybe somebody like Bill Foley, the folks at Silverado Premium Parners, or even somebody like pomegranate king Stewart Resnick will swoop in and pick up some of PPV's vineyards?

Either a) CalPERS has already got a deal brewing to sell it’s vineyard investments with PPV to a third party, b) They have a sensible plan to dispose of the assets and take a loss at a later date – they’re just not telling anybody, c) They’re going to wait out the recession and then sell the vineyards, or, perhaps most likely: d) They haven’t a clue what the heck they’re doing when it comes to vineyards – they’re just out to lunch.

Then there’s Preservation Ranch, the notorious proposed vineyard development project in Mendocino, a boondoggle that’s already become a poster child for environmentalists.

To be continued.
 

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