LPs flex their muscles

Two events this week demonstrated that mega buyout firms are listening to their LPs’ concerns – particularly when the $200 billion California Public Employees’ Retirement System is involved. 

CalPERS is the biggest pension fund in the US, and it appears that when CalPERS has something to say, GPs listen closely. 

Permira-backed Hugo Boss announced this week that it is going back to the bargaining table with employee union Workers United over the planned closure of a production facility in Ohio, shortly after CalPERS sent a letter to Permira expressing concern about the decision.

Hugo Boss has been accused by the union of not bargaining in good faith to try and keep the plant open.  A closure of the plant, located in Brooklyn, Ohio, would end at least 300 jobs. 

The $50 billion Ohio Public Employees’ Retirement System, and later CalPERS, sent Permira letters criticising the decision to close the plant. OPERS indicated the closure might impact whether the pension will be able to do business with Permira in the future. Both OPERS and CalPERS also expressed dissatisfaction with the overall performance of Permira’s most recent fund, which has generated a -36.6 internal rate of return, according to valuations as of 30 September. 

“Our primary focus with Permira is the performance of the fund, but we wanted some reassurance that the decision to close the Hugo Boss plant that would end US jobs was right for the fund,” a CalPERS spokesperson said. 

Hugo Boss said its decision to reenter talks with the union is the result of a letter the company received from the US National Labor Relations Board asking for talks to re-start, and not related to OPERS and CalPERS requests. But the decision was announced very soon after CalPERS’ letter to Permira was made public. 

Also this week, CalPERS went to a meeting in New York that reportedly included David Rubenstein, co-founder of The Carlyle Group, and Glenn Hutchin, co-founder of Silver Lake, as well as John Breen, head of private equity investing at the Canada Pension Plan Investment Board, and Ahmed Gubash, head of private equity at Abu Dhabi Investment Authority. The purpose of the meeting was to discuss “the role of private equity in the portfolios and the challenges and opportunities facing the industry”, said CalPERS’ chief investment officer Joseph Dear.

Dear, in the emailed statement, called the summit an Institutional Limited Partners Association roundtable. ILPA is an organisation of the biggest investors in private equity, representing more than $1 trillion in assets.

ILPA released guidelines last year intended to better align the interests of LPs with GPs. The ILPA guidelines have become a source of tension in the LP/GP relationship, as investors press for the more investor-friendly terms and managers try to determine which guidelines are feasible to meet. 

ILPA and the firms that reportedly attended the roundtable declined or were not available for comment.

Although the meeting’s agenda was not disclosed – and some sources said that the ILPA’s private equity terms and conditions guidelines were not even discussed – Dear said it was “productive” with more “agreement than disagreement”. With LPs holding the purse strings and fundraising still fairly slow, being agreeable is in GPs’ best interest.