Editor’s Letter: Interest groups get aggressive approaching firms’ LPs

LP activism has recently taken on a lot more significance.

I’ve often wondered why interest groups didn’t target a firm’s LPs if they wanted to get the firm to change its behavior.

Simply going after the firm itself is not really effective; these days, GPs are used to negative publicity. But pushing for change through a firm’s LPs can be a powerful move.

Look at the recent Toys ‘R’ Us bankruptcy. Kohlberg Kravis Roberts and Bain Capital agreed to put together a $20 million severance fund for company employees who lost their jobs in the liquidation. That fund could get larger if creditors agree to kick in capital to help out.

It’s a great result and comes after months of organized presence by ex-employees at various public-pension meetings across the country. The targeted pensions are, naturally, LPs in KKR and Bain funds.

Recently, a national campaign against the bail-bond industry has been targeting Endeavour Capital, which owns one of the largest bail-bond companies, Aladdin Bail Bonds.

The ACLU came to an Oregon Investment Council meeting in September and asked the OIC to not commit any more money to Endeavour, at least until the firm gets out of the for-profit bail-bond industry.

“Bail bonds are inherently exploitative, profiting off of low-income people at their most vulnerable moments,” said David Rogers, executive director of the ACLU of Oregon.

“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 [1970s] 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 systems.” 

It’s unclear whether the presentations will lead to OIC making any changes. And in fact, OIC can’t really make changes to its existing PE investments unless it were to sell off its fund stakes in a secondary sale. We’ll have to see whether Oregon actually avoids committing to Endeavour.

It’s interesting to see activist groups targeting firms’ investors, and I imagine there’ll be a lot more of this type of thing, given that it’s the most effective way to get to a PE firm.

Action Item: Check out more about bail bonds here: http://pestakeholder.org/