OBWC: Yes to Publics, No to Privates


Have you ever seen one of those television segments where a monkey is brought in to make stock picks alongside Wall Street analysts? The monkeys occasionally prevail, which makes for the most compelling pseudo-business programming since CNBC launched the Dennis Miller show. 

I actually haven’t seen one in a while, perhaps because the trained monkeys have been on loan as consultants to the Ohio Bureau of Workers’ Compensation. This is the scandal-plagued system that late last year fired all of its public equity managers and decided to sell off its entire private equity portfolio (second-round bids due later this week). All that remained was fixed income, due to a fundamentalist adoption of risk aversion. 

Now, however, word comes that OBWC will tepidly reenter the public equities market on the advice of both Wilshire Associates and the monkeys (after all, do you really need humans to suggest that public equity might aid in portfolio diversification?). No such luck for private equity, however. An system spokeswoman said that Wilshire did not recommend private equity, and that OBWC still views the asset class as too illiquid for a workers’ compensation organization (i.e. non-pension). Per usual at OBWC, return-on-investment is not a terribly important consideration. Nor is the notion that private equity could actually be a bit more liquid – via secondaries – if the system followed its own rules for portfolio management (which it historically has not done, according to a recent State Auditor’s report). 

It also is worth noting that the OBWC private equity disclosure lawsuit is still ongoing. It is true that the result likely doesn’t matter for OBWC GPs, since ithe OBWC private equity portfolio probably will be sold before any ruling. The case does, however, still hold significant implications for both Ohio PERS and Ohio Teachers, both of which remain in the private equity market. If full disclosure is mandated, both of those systems will be forced out of future deals and into fire sales of existing assets. 

The hope here is that the Dayton Daily News and other such media outlets will reach an out-of-court compromise like the one reached in California between CalPERS and the Mercury News. Accept top-line fund performance information – and maybe even portfolio company names – without insisting on the underlying financials. Neither OBWC nor the Ohio AG has any skin in this game (since he lost the GOP gubernatorial primary), and neither Ohio PERS nor Teachers has acted in a way that would justify suspicions of impropriety. So let it rest. Allow at least some public employees in Ohio to benefit from private equity’s strong returns, even if OBWC no longer sees fit to do so.