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Two LACERA board members support not re-upping with PAI Partners

The $60bn pension has faced pressure from a labor union over PAI's handling of labor issues at a portfolio company rocked by the covid pandemic.

Two members of the Los Angeles County Employees Retirement Association board of investments said Wednesday they would support not investing in future PAI Partners funds after more reports of negative relations between a portfolio company and laid-off workers.

The company, Areas USA, runs concessions at several US airports. It has laid off many of its workers due to the massive hit air travel has taken during the coronavirus pandemic.

Laid-off workers and their union, Unite Here, have been coming to LACERA for months to ask the $60 billion pension to push the company to engage with them about providing continuing health care coverage to laid-off workers, as Buyouts has reported. In July, the board decided to send a private letter to PAI about the situation.

During public comment at the board’s December 9 meeting, one Areas worker said if LACERA had sent its letter, the workers had heard nothing about it. Unite Here organizer Jordan Fein called for LACERA to announce it would not consider future investments with the firm.

“Such a statement will make it clear that there will be consequences for managers that don’t demonstrate respect for LACERA’s stated commitments to ESG,” Fein said. “It would also show your peer funds that they can take action when private equity managers treat investing workers’ capital as a right instead of a privilege.”

Buyouts asked LACERA chief investment officer Jonathan Grabel whether the letter had been sent, to which LACERA responded that it had “one responsive document” that was exempt from disclosure under California law. The pension did not say whether it received a response. Grabel offered no comment for this story.

At the meeting, board chair David Green thanked the workers for their comments, and expressed support for their demands.

“I would recommend when the time comes to not re-up with PAI and Areas,” he said. “It seems like we haven’t made progress and we’ve actually taken steps back.”

He called for the investment to be discussed at next month’s meeting.

Herman Santos, the chair of the board’s Equity committee, agreed.

“I don’t think that we should be re-upping with this particular manager that has not been responsive, as far as I’m concerned,” he said.

Herman Santos.

LACERA is an LP in PAI Europe VII, a 2017 vintage to which it committed €150 million ($182 million). According to a report delivered to the board Wednesday, the fund has a -66.22 percent net internal rate of return as of June 30.

The fund is still in its J-curve, a time early in a fund’s life before investments mature, meaning performance is likely to improve.

“PAI Partners takes its duty as a responsible investor and owner of businesses very seriously,” the firm said in a statement. “Areas, like many other companies in the travel sector, was negatively impacted as a result of COVID-19 and PAI fully supports the company and the actions taken by the management team in its efforts to navigate the unprecedented circumstances.”

The firm went on to say it had full confidence in Areas management’s ability to handle the situation, and it had responded to LACERA’s concerns on “numerous occasions.”

“PAI has an excellent relationship with its LPs and is committed to providing full transparency to all of its investors on any issues relating to its funds’ investments,” the firm said.

“Areas is in compliance with its collective bargaining agreements nationwide,” said Areas in a statement to Buyouts. “Government-imposed public health orders prohibiting indoor dining and bar service continue to restrict Areas’ ability to bring more employees back to work.”

Both Areas and PAI pointed out the company had reached an agreement with the city of Los Angeles to provide health care to laid-off employees at LAX in exchange for rent relief and lease extensions. Fein and an Areas worker also mentioned this at the meeting, but criticized the company for only doing so after the relief was offered. Fein told the board laid-off workers in other cities still have no health insurance.

Pennsylvania Public School Employees’ Retirement System, Teacher Retirement System of Texas and Washington State Investment Board are also investors in the PAI fund. Texas Teachers had no comment.

Washington spokesman Chris Phillips said the pension has heard about the Areas situation from Unite Here, but that the board had no position on the labor dispute and PAI was still in “good standing” with the pension.

“Our investment team understands that some business sectors such as hospitality and travel have been tragically hard hit by the impacts of the global pandemic,” Phillips said via email. “We will continue to evaluate all our general partners and their investments in full context of the systemic challenges and opportunities that are occurring in this environment.”

PA Schools spokesman Steve Esack told Buyouts the pension had no direct comment.

“While we cannot get directly involved in a labor dispute, [PA Schools], through its investing size and position on advisory boards, can encourage the parties to come to an amicable resolution that benefits everyone,” he told Buyouts via email.

Action Item: read the documents for the December 9 LACER board of investments meeting here.