LP corner, week of May 17, 2010

Permira-backed Hugo Boss keeps Ohio plant open

High-end suit maker Hugo Boss, a portfolio company of London-based Permira Advisers, has worked out a deal with the local union that will keep open its only U.S.-based plant, which had been scheduled for shutdown in April.

Some of Permira’s limited partners had strongly objected to the closing in letters to the general partner.

“Those letters had no bearing on the decision to keep the plant open,” according to a company spokesman. Hugo Boss and the union reached a settlement through negotiations that resulted in a proposal that met the company’s economic goals, the spokesman said.

In April, Peter Franchot, comptroller of Maryland, wrote to Permira stating, in part, that the planned factory closing was “troubling when one considers that Hugo Boss is a portfolio company of Permira Advisers, a private equity firm that counts state pension systems among its largest institutional investors. I do not believe it’s appropriate for a firm such as Permira, whose funds are largely sustained by taxpayer dollars, to initiate or condone actions that could further compromise the health of our economy and jeopardize the value of the public’s investments in your funds.”

The Maryland State Retirement and Pension System is an LP in Permira IV, which has backed Hugo Boss.

Previously, executives of the Ohio Public Employees Retirement System wrote to Permira Advisers expressing concern over the shuttering of the factory, which is located in Brooklyn, Ohio. The letter said, in part, that due to what it considered the poor performance of the fund and a lack of good faith bargaining in trying to keep the plant open, the “board now has concerns about future involvement with your institution.”

John Liu, New York City’s comptroller, echoed the concern over performance, noting in a letter that “Permira IV has underperformed” and that “the Hugo Boss situation only compounds our concerns about the handling of Permira IV.”

Liu oversees the city’s pension funds, two of which, the New York City Police Pension Fund and the New York City Fire Department Pension Fund, are backers of Permira IV. After the decision to keep the plant open, a spokesperson for the comptroller told PE Week affiliate publication Buyouts: “We’re appreciative that Permira was responsive to our deep concerns.”

As of Sept. 30, 2009, data from the California State Teachers’ Retirement System shows Permira IV generating an IRR of –36.45 percent. Permira’s other LPs include the California Public Employees’ Retirement System; the Massachusetts Pension Reserves Investment Management Board; the Pennsylvania Public School Employees’ Retirement System; the Pennsylvania State Employees’ Retirement System; and the Washington State Investment Board.

In November 2008, Permira allowed LPs to cap their pledges to Permira IV at 60 percent. Fund IV closed with $14.5 billion in 2006, more than double the size of the firm’s vintage 2003 fund. —Nancy Gordon

Texas LP commits $200M to distress

The Teacher Retirement System of Texas recently committed $200 million to two investment vehicles managed by Oaktree Capital Management, marking the limited partner’s first private equity pledges of the year, according to a spokesperson.

The amount will be evenly divided between Oaktree Opportunities Fund VIII and its sidecar vehicle Oaktree Opportunities Fund VIIIb, which will either invest at the same time as the main vehicle, or after it, depending on the opportunities available.

Oaktree Capital has earmarked the funds for investing worldwide in the distressed debt of large, overleveraged companies.

Similarly, the Teachers’ Retirement System of the State of Illinois also recently pledged to the two funds, with $100 million going to Oaktree Opportunities Fund VIII and a $50 million to Oaktree Opportunities Fund VIIIb.

As previously reported, the Teacher Retirement System of Texas intends to commit about $2.5 billion to private equity in 2010. The limited partner pledges to primary, secondary and co-investments; emerging managers; opportunistic investments, such as investments in the management entity of a private equity investment firm or sponsor; and public-to-private transactions.

The $91 billion LP’s target allocation to private equity is 10%, with a range of 5% to 15 percent. As of Sept. 30, the actual private equity allocation stood at 6.5 percent. —Nancy Gordon

NJ to start pledging again

The New Jersey State Investment Council, which manages $67 billion for the state’s pension funds, will likely pledge $700 million to $1 billion to private equity in the next 12 to 15 months, said Christine Pastore, head of private equity, at a recent conference.

The state has not made a commitment since 2008, when it committed a little more than $2 billion to private equity.

Pastore said that unfunded commitments are “going out slowly,” which is why the LP hasn’t pledged in nearly two years. But she pointed out that because the pace of distributions has “picked up dramatically,” the pledge rate could accelerate, as well.

Pastore indicated that New Jersey will be “very selective” in making pledges and will probably end up consolidating relationships with general partners. She’ll also be focusing on how general partners manage through this cycle and will look more closely at how they are compensated internally.

“Transaction fees are a thorn in my side, but monitoring fees are a knife in my head,” she said.

In other news, the state recently began a search to replace William Clark, former director of the division of investment. Clark left to become the senior vice president and CIO at the Federal Reserve System’s Office of Employee Benefits, starting on March 1. —Nancy Gordon