The Most Expensive Course Ever Built

Golf and investing are closely related, as I have described many times in this column with examples of historic parallels and remarkable correlations between trends in investing and trends in golf. This close relationship was manifested in an incredible physical form just a few months ago.

The event that crystallised the physical relationship between golf and high flying investment markets was the opening, on the 4th July, of the “most expensive golf course in the world”. The course, Liberty National Golf Club, with a reported price tag to develop of $130 million dollars, has been the dream of former Reebok Chief Executive Officer Paul Fireman.

Fireman bought the site, and it’s the courses location that makes it so very special, back in 1998. The 165 acre former munitions dump and toxic wasteland lies just across the Hudson River from down town Manhattan and Wall Street. It is only about a thousand meters from the Statue of Liberty and can be reached from the city by launch in 12 minutes. When Fireman bought what was to become Liberty National $29 million had already been invested in it by the former owners in an attempt to clean it up and Tom Kite and course architect Andy Cupp had been commissioned to design the course, but there was so much more that needed to be done. Now Fireman has done it, after years fighting bureaucracy and legal red tape the course has been completed, the land was raised up to 50 feet, five hundred trees have been planted and six ponds were created. The course measures 7,346 yards and is apparently a blend of parkland and links style golf, all little more than a stones throw from the skyscrapers of lower Manhattan.

But is Liberty National Paul Fireman’s, “Field of dreams”, build it and they’ll come? The answer is probably not. If fulfilling personal fantasies were all Fireman wanted to do then he certainly could, after selling Reebok he is estimated to be worth $1.1 billion and to be the 346th richest American, however, it is unlikely he would have achieved all he has if that were his only motivation.

Back in 1979 Fireman mortgaged his house and bought the US distribution rights for a struggling UK athletic shoe maker, Reebok, for $35,000. The company grew on the back of the aerobics boom and by the mid eighties Fireman had bought out the British owners and taken Reebok public. Twenty years later the whole company was sold to rival Adidas for $3.8 billion.

Fireman’s involvement with golf courses also came about in the mid eighties. Then, unable to gain membership of a private club on Cape Cod near his summer house, apparently due to its “restricted” membership policy, he ended up buying a bankrupt course near by. He invested millions in it, redesigned the course and clubhouse and reopened it in 1992 to great acclaim. One thing that Fireman did away with was the membership committee and replaced it with one person, himself. The club Willowbend, has a totally transparent membership policy with the only hurdle being the $150,000 initiation fee. Since then his golf company has gone on to develop a further nine golf courses in the US and Puerto Rico.

Liberty National is the ultimate golf development project, as its costs and location indicate, and its success will be dependent upon the three residential condominium towers that will be built next to the course selling, and the membership filling. It is planned to accept 50 members this year and another 50 next year with an ultimate goal of 310 members. Again, the membership policy is in no way restrictive, apart from cost. Liberty National’s initiation fee is a cool $500,000 followed by annual subscriptions of $20,000 and judging by the web site that says, “Liberty National offers exclusive five star luxury facilities to the most elite clientele in the world”, membership is by invitation only.

So who do the club expect to become members and who can pony up $500,000? The membership is understandably private; however, the unique location makes Liberty National attractive to the business elite of New York. And the business elite of New York, particularly the financial elite of New York, have been doing very well recently. The rising markets of the last few years have seen incredible returns to the most successful. This has been most apparent in the somewhat private world of hedge funds. Hedge funds attract and reward the smartest individuals in investment markets and the level of the rewards for the cream of this elite were revealed recently. The Institutional Investor’s Alpha magazine reported that last year the highest paid hedge fund manager took home $1.5 billion and that the average of the top twenty five earners was $363 million.

Hedge fund wealth is still concentrated in, but not limited to the US. New Zealand and New Zealand golf have benefited in no small way from the industry’s incredible wealth creation. Julian Robertson, the man behind Kauri Cliffs and Cape Kidnappers, two of the world’s top 100 courses, was one of the earliest and most successful hedge fund managers.

But it’s possible that not all hedge fund managers are golfers, however, when Liberty National is only looking for fifty members a year it seems there will be plenty of candidates, just across the river, for whom $500,000 will not present a hurdle.

Hedge funds though are far from a guaranteed source of wealth. Just as they can deliver great rewards they can also suffer dramatically, and some distress has been apparent recently. If the US economy was to weaken further, and its vulnerability may be greater than many commentators are currently discussing, this recent distress could become even more widespread.

None of this will likely disrupt the plans of Paul Fireman and Liberty National, but it may have a material affect on the vast majority for whom Liberty National will only ever be a “field of Dreams”.

Kevin Armstrong

Chief Investment Officer

ANZ Bank and the National Bank

8th September 2006