OBWC Portfolio Sale Nears End

Ohio could certainly use some good news, after the locals got tossed again by Florida in a national championship game. So here it is: The Ohio Bureau of Workers’ Compensation is just weeks away from exiting the private equity market. Hoorah!

Ok, I know what some of you are thinking: “Isn’t this a bad thing, given how private equity typically outperforms public equity and bond indices?” Well, that would be true in most cases — but OBWC is exceptionally inept. It favors short-term political expediency over long-term investment strategy (thank you Coingate). It seems unable to properly file away partnership subscription agreements. And then there was its willingness – no, make that its eagerness – to sell general partners down the river by disclosing portfolio company valuations. In short, OBWC is like that annoying guy at the poker table. He’s got enough money to keep anteing, but is unable to differentiate between a low pair and a straight flush. At least OBWC knows when to fold them…

Which brings us to the present. Both buy-side and sell-side sources tell me that final bids for the OBWC private equity portfolio were due last Thursday. An email goof by placement agent UBS revealed that at least 29 firms had expressed serious interest, although it’s unclear how many actual offers were made. What I do know is that UBS put the entire portfolio’s net asset valuation at $685 million, including around $271 million in unfunded commitments.

Expect the final sale to be at a premium, but it seems highly unlikely that any one secondary firm will walk away with the whole enchilada. In fact, it’s highly unlikely that such a bid even exists. Instead, prospective buyers view the portfolio as three pieces: (1) The good stuff, which includes funds from firms like The Carlyle Group, Castle Harlan and Charter Life Sciences; (2) The bad stuff, which is a portfolio of Ohio-based firms that has an average net annualized IRR of -17.3% through the end of Q1 2005; and (3) The funds-of-funds, which include HarbourVest Partners, Lexington Partners and Fort Washington Capital Partners.

Top-end secondary firms will be interested in 1, but probably will be precluded from owning stakes in 3. They won’t want 2, but might bid anyway just to ease the process. There will be some secondary salvage shops that only will bid on 2, and then some secondary firms without fund-of-funds arms that will bid on part 3.

Winners and losers will be selected within the next two to three weeks, with UBS already having scheduled presentations to current OBWC staff (who are far more competent than their former bureaucratic overlords).

OBWC general partners include: ABRY Partners, ABS Capital Partners, Athenian Venture Partners, Carlyle Group, Castle Harlan, Charter Life Sciences, Draper Triangle Ventures, EDF Ventures, Edgewater Funds, Edison Venture Fund, Fort Washington Capital Partners, Fremont Partners, Halpern Denny, HarbourVest Partners, Lexington Partners, Invesco Private Capital, MCM Capital Partners, MK Capital Management, Pharos Capital, Primus Venture Partners, Quad C Advisors, Reservoir Capital Ventures, TCW/Crescent Mezzanine, Thayer Capital Partners, Triathlon Medical Ventures and Wind Point Partners.

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