Ohio PERS Jabs Permira for Ohio Plant Close, Low IRRs

The $68 billion Ohio Public Employees Retirement System has written a letter to Phillip Bassett, a partner at London-based private equity firm Permira Advisers LLP, expressing concern over the shuttering of a clothing factory in Brooklyn, Ohio.

Germany-based Hugo Boss, a high-end suit maker, is a portfolio company of Permira IV, to which the pension fund pledged €60 million ($81 million) in 2006; the pension fund had earlier committed €50 million to Fund III.

The letter, signed by the chairman of the Ohio PERS board, Ken Thomas, and CEO Chris DeRose, said, in part, “The investment performance of Permira IV has underperformed our expectations and is inconsistent with the reputation of your institution.” It went on to note 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.”

As of March 31, 2009, data from the California State Teachers’ Retirement System shows Permira IV having generated an IRR of –50.56 percent. “We are sensitive to the concerns of our investors and always have open lines of communication with them,” said Chris Davison, spokesperson for Permira.

Nearly 400 jobs are at stake, according to Workers United, the union representing the plant’s employees; the factory is scheduled to close in April. The pension fund is asking the company to talk with public officials, who have already offered financial incentives to keep the plant open. In January, Workers United filed a federal unfair labor practice complaint against Hugo Boss.

The union is approaching public pension funds in California, Massachusetts, New Hampshire, Pennsylvania and Texas to encourage them to re-evaluate their relationships with Permira. Permira’s backers 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 gave investors the ability to cap their commitments to Permira IV at 60 percent, after the fund’s largest LP, SVG Capital, asked for a cutback due to liquidity issues. Fund IV closed with €11 billion in 2006, more than twice the size of the vintage 2003 fund. About 10 percent of the LPs lowered their pledges, reducing the total pool to €9.6 billion.