Activists target Endeavour Capital’s LP Oregon for bail-bond investment

Another private equity firm has come under pressure from activists groups targeting its limited partners.

Endeavour Capital, an Oregon-based firm, has caught the attention of activists mainly associated with a national campaign to reform the bail-bond industry.

Supporters of reform believe bail bonds disproportionately affect low-income people, who can’t afford to pay and who remain on the hook to repay such credit even if they’re found innocent.

Endeavour owns one of the largest bail-bond companies in the country, Aladdin Bail Bonds, along with an affiliate insurer, Seaview Insurance Co. It’s not clear if Endeavour acquired Aladdin simultaneously with Seaview. 

The firm acquired Seaview in 2012 using its sixth fund, according to a California Department of Insurance examination of the company. Endeavour Capital Fund VI closed on $675 million in 2011.

“Bail bonds are inherently exploitative. They profit off low income people at their most vulnerable moments, and the industry is so bad, there is growing bipartisan national movement to end it,” said David Rogers, executive director of the ACLU of Oregon.

The ACLU spoke at the September Oregon Investment Council meeting and asked the Council not to commit any more money to Endeavour until the firm exits the bail-bond industry.

The council did not respond to the request and a spokesman for Oregon’s state treasurer said no action has been taken.

Oregon has about $347 million committed to Endeavour funds.

“There is a tragic irony in this scenario that implicates Oregon in multiple ways,” Rogers said. “Oregon legislators had the wisdom all the way back to the ’70s to recognize that the for-profit bail bond industry and system is fundamentally exploitative and runs sharply in conflict with Oregon values. And yet, Oregon public resources are being used to crush efforts of other states who simply want to apply the similar values that we have to their own public policies and justice system.

“I’m sure this is not the legacy OIC imagined when it started to invest in Endeavor,” Rogers said.

The issue is one not only of social justice but of fiduciary responsibility, Rogers said. California recently passed a law banning commercial bail. New Jersey, Kentucky and District of Columbia have also enacted restrictions on cash bail.

In California, public officials will perform risk assessments of offenders to determine whether they should be held in jail, released on their own recognizance or be kept under house arrest.

A similar system exists in New Jersey, which saw a 20 percent reduction in pretrial inmates, according to an article in the Press of Atlantic City.

“If justice-minded legislators and advocates and voters have their way, there will be many more blows to the bail bonds industry across the country. And if we have our way, the industry will end altogether,” Rogers said.  

“From investment perspective, the prognosis doesn’t seem great,” he said. “[Aladdin] will now have to spend millions of dollars to protect themselves and really try and stay alive. Their success will be measured by their ability to defeat and repeal much-needed reforms across the country.”

Murky future

If the national trend continues, Aladdin’s business will be affected, according to John von Schlegell, managing director at Endeavour.

However, in California there is a referendum against the new law. Ironically, the ACLU is opposing the new law because it could lead to longer pretrial incarceration.

“It’s premature for anybody to figure out whether this was a good investment,” von Schlegell said about Aladdin. “So far it’s been a good investment.”

Von Schlegell agreed that the bail-bond industry needs reforms, but he said completely eliminating cash bail can lead to unintended consequences, including more time under confinement and threats to public safety.

Cash bail “ensures better access to pretrial release for people accused of a crime,” von Schlegell said. The reform system creates high costs by putting responsibility of running pretrial services on public officials, he said.

“A lot of the public safety law enforcement doesn’t have the bandwidth to make sure people show up for hearings,” he said.

Endeavour hasn’t talked to Oregon since the meeting, but has talked to the firm’s LPs in general about various types of investments.

“We’re going to do business with companies that are lawful and run by good people, and ethical. That’s what they pay us to do, that’s what we intend to do, that’s what we’ve done here,” von Schlegell said.  

Activists appear to be targeting PE firms’ LPs as ways to try and force changes.

Recently, ex-employees of Toys ‘R’ Us organized and visited several public pensions that were LPs of Kohlberg Kravis Roberts and Bain Capital, asking for severance after the company went into liquidation.

The strategy appears to have worked as both firms said they would contribute $20 million to a severance fund to support former employees.

Action Item: Check out Endeavour Capital’s Form ADV here: https://bit.ly/2QqSpcs