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Washington State Goes Green (Leonard Green, That Is)

The Washington State Investment Board has made a foundation-level investment in the newest offering from Leonard Green & Partners, a firm that the $84 billion pension system has invested with twice before.

At its Sept. 15 board meeting, Washington State committed $300 million to Green Equity Investors VI LP, which has a target of $5 billion. Leonard Green is famous in the buyout industry for making well-timed investments in retail chains like Whole Foods, BJ’s Wholesale, RiteAid, Neiman Marcus and The Sports Authority.

Washington State is known for making large commitments through one of the nation’s largest private equity programs. In April, 2011, the state committed $300 million to the latest offering from Providence Equity Partners; in March, the system committed $500 million to the latest fund from Kohlberg Kravis Roberts. With $15.6 billion in invested private equity capital, the asset class represents roughly a quarter of total assets for the system’s main pension vehicle.

Washington State committed a combined $305 million to Leonard Green’s two prior funds, Green Equity Investors IV LP and Green Equity Investors V LP, but September’s commitment is its largest to the firm.

Fund IV, which closed in 2003 with $1.9 billion in commitments, has so far produced a decent but uninspiring return. As of March 31, 2011, according to the state’s return data, Fund IV had generated a net IRR of 10.5 percent and a return multiple of 1.5x. The successor, according to the same data, has done much better. That fund, which closed in 2007 with $5.3 billion in commitments, has generated a net IRR of 20.1 percent and a total value return multiple of 1.3x.

Leonard Green, which was founded by the firm’s namesake (who died in 2002), manages $9 billion in assets overall.

In related news, Washington State also invested $125 million in Endeavour Capital’s Endeavour Fund VI LP, which has a $600 million target. Endeavor, which is based in Lake Oswego, Oregon, invests mainly in middle market companies based in the Western United States.

Prior to this commitment, Washington State committed a combined $115 million to the firm’s two prior funds, Endeavour Capital Fund IV LP and Endeavour Capital Fund V LP. Fund IV, which closed in 2004 with $238 million in committed capital, has performed very well, generating a 24.8 percent IRR and a 2.5x return multiple as of March 31, 2011, according to the state’s return data. Fund V, which closed in 2007 with $475 million in committed capital, has not fared as well. It has generated a -14.5 percent IRR along with a 0.8x return multiple.