LP corner, week of June 7, 2010

Washington continues tradition of backing turnarounds

The $55 billion Washington State Investment Board recently pledged up to $150 million to turnaround fund Littlejohn Fund IV, according to a spokesperson for the state pension fund.

This is a new relationship for the limited partner, although the state previously committed to a predecessor firm.

Littlejohn & Co., a Greenwich, Conn.-based turnaround shop, invests in companies with revenue of $150 million to $800 million. Sectors of interest include industrial equipment, packaging, chemicals, automotive, food and food processing, health care, plastics, aerospace, defense, distribution and consumer products. So far, the firm has raised more than $1 billion from 49 limited partners toward its $1.25 billion target and $1.35 billion hard cap.

The state has a long tradition of committing to distressed investment specialists, starting in 1994 with a pledge to a fund run by Joseph Littlejohn and Levy. (Angus Littlejohn left that firm in 1996 to found Littlejohn & Co.)

As of Dec. 31, 2009, the LP had almost $1.9 billion in distressed funds, which have racked up an IRR of 10.2 percent. Other pledges over the years have gone to Avenue Capital Group’s special situation funds, Matlin Patterson Asset Management and a number of Oaktree Capital Management vehicles.

The pension system’s actual private equity allocation stood at 24.6% as of March 31, near its target allocation of 25 percent. Its private equity allocation range is between 21% and 29 percent.

Almost two-thirds of Washington State Investment Board’s private equity portfolio is in buyouts, with the rest in international, venture capital and distressed funds. Earlier this year, Washington State committed up to $25 million to CDH Fund IV, a fund managed by Beijing-based CDH Investments to invest in growth stage companies in China that sell their products domestically. —Nancy Gordon

Franklin Park launches emerging market FoFs

Philadelphia-based advisory firm Franklin Park Associates is marketing a fund of funds aimed at backing firms operating in emerging and developing economies.

The firm hopes to close the new vehicle at its $100 million target in June. The hard cap is $200 million.

Franklin Park’s retainer advisory clients, such as the Arkansas Teachers Retirement System, can commit to Franklin Park International Fund 2010 without paying management fees or carry, according to a presentation made by the firm.

Expenses are paid on a pro rata basis by the limited partners. The vehicle also has a one-year commitment period and offers annual subscriptions. Thus, “clients can make annual investment decisions, rather than being locked in for multiple years like traditional fund of funds,” noted the presentation.

Franklin Park intends to focus mainly on high-growth emerging economies such as Brazil, India, China and some countries in Africa and Central and Eastern Europe. Other areas of investment could include Australia, Japan, South Korea and some countries in the Middle East and Southeast Asia. Developing Western markets, such as Italy, Spain and some Benelux and Nordic countries, could also be of interest.

Franklin Park’s clients include the City of Philadelphia Board of Pensions and Retirement, Overseas Private Investment Corp., Penn State University Office of Investment Management, the Teachers’ Retirement System of Oklahoma and the West Virginia Investment Management Board.

Franklin Park was founded in 2003 by several former Hamilton Lane executives. —Nancy Gordon