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 LP, according to a spokesperson for the state pension. 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 revenues 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.

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.

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.) 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. As of Dec. 31, 2009, the LP had a total of almost $1.9 billion in distressed funds, which have racked up an IRR of 10.2 percent.

The pension system’s actual private equity allocation stood at 24.6 percent as of March 31, near its target allocation of 25 percent. Its private equity allocation range is between 21 percent 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. The pension has investments with more than 100 private equity managers and uses Capital Dynamics Inc. as its consultant for the asset class.