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LP corner, week of March 8, 2010

Ohio Pension threatens Permira over Hugo Boss plant closure

When upscale men’s fashion retailer Hugo Boss decided to close its Brooklyn, Ohio-based plant, state officials begged controlling shareholder Permira to reconsider. Both the facility and Hugo Boss itself were profitable, they argued, and the community could hardly afford the loss of another 400 jobs.

To make matters worse, Hugo Boss said it was still on track to pay out a special dividend to shareholders.

The situation is not sitting well with the Ohio Public Employees Retirement System (OPERS), one of Permira’s investors and which has committed about $149 million to a pair of Permira funds, including the one that holds Hugo Boss.

In a letter to the European private equity firm, OPERS said that it “now has concerns about future involvement” with the private equity firm, and insisted that negotiations be reopened with elected officials.

The state pension fund added:

“The OPERS Board noted that the investment performance of Permira IV has underperformed our expectations and is inconsistent with the reputation of your institution. Due to the poor performance of the fund and representations to the Board…the Board now has concerns about future involvement with your institution. In the interest of improving the overall performance of Permira IV, OPERS urges you to reengage both local and state officials to evaluate profitable alternatives to the closure of this facility.”

As OPERS points out, the factory isn’t scheduled to be shut until next month. But, if it doesn’t, labor unions will continue asking other state pension funds with Permira business to apply their own pressure. —Dan Primack

CalSTRS re-ups with FoF despite poor record

The California State Teachers’ Retirement System recently committed $100 million to the fourth iteration of the Banc of America Merrill Lynch Capital Access Fund, even though the returns of the three predecessor funds are all in negative territory.

The IRRs for the three previous funds, as of March 31, 2009, are –14.7% for the 2003-vintage fund; –5.5% for the 2005 fund; and –28.6% for the 2006 fund, CalSTRS spokesperson Ricardo Duran said. CalSTRS previously committed to the earlier three funds.

“As an investor in the long term, CalSTRS believes there is underlying value in these investments that will emerge over time and as the economy recovers,” Duran said.

BAML Capital Access Funds declined to comment.

The investment is part of CalSTRS’ more than $1.1 billion “proactive portfolio,” which includes an urban and rural component and an emerging manager program, among other strategies.

Chicago-based BAML Capital Access Funds sponsors funds of funds focused on underserved U.S. markets, committing to venture, growth, mezzanine and buyout vehicles. The firm invests in emerging managers; funds that focus on companies owned or operated by women or ethnic minorities; companies located in low to moderate income or rural areas; and those focused on underserved consumer markets.

“This fund extends new capital into traditionally underserved communities in the inner cities and rural areas, during a time when the capital that small businesses need in order to grow is in short supply,” said CalSTRS CIO Christopher Ailman in a prepared statement.

Last year the New York State Common Retirement Fund pledged $200 million to the fund. The California Public Employees’ Retirement System is also an investor. —Nancy Gordon

Mexican pensions to invest $200M

Mexico’s pension funds will invest $200 million in a local private equity fund, people involved in the deal said, as the risk-shy funds search for bigger returns.

Roughly half of the country’s nearly two dozen private pension funds, known collectively as Afores, will be involved in the transaction that should be listed on the Mexican stock exchange in the coming days, according to Luis Alberto Harvey, managing director of Nexxus Capital, which will receive the funding.

“We have everybody lined up,” Harvey told Reuters. “We are waiting for a couple Afores to pass their final committees. That is why I can’t give the exact amount.”

Mexico City-based Nexxus Capital raised $177 million for Nexus Private Equity Fund III, which closed in 2007, according to Thomson Reuters (publisher of PE Week).

Mexico’s private pension funds manage about $85 billion in combined assets, mostly government debt and low-risk corporate bonds. —Reuters