When upscale men’s fashion retailer Hugo Boss decided to close its Brooklyn, Ohio 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.
Permira, a European private equity firm, didn’t seem to listen — even when the pleadings came with promises of financial incentives. And, to add insult to injury, Hugo Boss said it was still on track to pay out a special dividend.
Erin last month suggested that Permira was playing with fire:
Companies usually cite fiduciary duties in making layoffs and shutting facilities — they have an obligation to make money for their shareholders. In the case of a private equity firm, those shareholders often are pension funds, which could quite possibly include the pensions of the workers getting laid off (and subsequently, losing their pensions?).
Well, one of Permira’s investors is the Ohio Public Employees Retirement System (OPERS), which has committed approximately $149 million to a pair of Permira funds (including the one that holds Hugo Boss). It doesn’t appear that any OPERS members work at the Hugo Boss plant, but the system is still steamed with how the factory closure has been handled.
In a letter to Permira, 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 pension system also added a dig at Permira’s investment acumen:
“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 that VFG, Italy (Hugo Boss) did not bargain in good faith with state and local community partners, 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.”
There is still time for Permira to change its mind, OPERS points out, as the factory isn’t scheduled to be shut until next month. But, if it doesn’t, labor unions will continue asking other state pension systems with Permira business to apply their own pressure. Were OPERS to be just the beginning of a domino line, then Permira likely will have lost far more than it was ever trying to gain.