SPECIAL REPORT: Maine public pension's investment in private equity ends in total loss, bankruptcy of largest peach farmer in U.S.

AUGUSTA, Oct. 18, 2023 - Maine’s public employee pension lost almost $22 million in a private equity fund which is being sued by investors claiming it drained the country’s largest peach farmer, Prima Wawona, of operating cash it needed to stay solvent.

The loss is a pittance compared with the $18.5 billion in assets managed by the Maine Public Employees Retirement System for state employees, teachers and municipal workers.

But it shines a light on the uneasy relationship between public pension funds and the “take no prisoner” approach of private equity as stated in this article, “Why public pension systems invest in private equity, even when they shouldn’t.”

Did the investment meet MainePERS’s own written goal: “Before making any new investment, MainePERS completes a robust due diligence process considering a broad range of factors.

“Such factors include whether partners work constructively with deal stakeholders and are good community members themselves.”

In an 83-page complaint filed July in Delaware, the previous owner Dan Gerawan, who still holds 25 percent of the shares, alleged the private equity firm Paine Schwartz drained more than $24 million in cash in less than four years and used its control to enrich McKinsey & Company, a consulting firm that has long-standing ties to the investment firm. The lawsuit stated that many Paine employees are former employees of McKinsey. 

Paine Schwartz stated that the lawsuit is groundless.

MainePERS’s chief investment officer James Bennett stated in an email:

“MainePERS relies on a General Partner to make all investment decisions, including the selection and management of individual assets. 

“We committed $60m to Paine & Partners Capital Fund IV in 2014.  This fund made a number of investments, one of which is Prima Wawona.  MainePERS also made additional investments in Prima Wawona, totaling $22m.”

MainePERS lost the entire investment in five years.

Prima Wawona is the merged California company of Gerawan Farms and Wawona Packing in 2019.

The company entered bankruptcy last week, The Wall Street Journal reported, and is hoping to find a buyer. It has 8,000 employees at risk.

John Boken, current Prima Wawona CEO, stated, “We recently completed the 2023 harvest season, during which our team grew, packed and delivered more fruit across more acres than ever before. At the same time, the business has faced significant headwinds, including increased costs and weather-related impacts, that have combined to make our existing capital structure unsustainable. Over the course of this year, we proactively evaluated options intended to enable us to build on our leading market position, our efficient and sustainable farming practices, and our history as an employer of choice.”

Dan Gerawan led the merger of his company with Wawona Packing, staying on as CEO until he was ousted by Paine Schwartz in 2020, reported the San Joaquin Valley Sun.

His suit alleged that Paine Schwartz hired McKinsey without approval from the board and that McKinsey failed to meet promises.

McKinsey is listed in court papers as Prima Wawona’s biggest creditor, owed more than $8 million.

Prima Wawona has asked the court to let it continue operating through its reorganization, including paying employees and suppliers. The company proposed a Nov. 17 deadline for bids on the business.

Paine Schwartz raises a lot of money from public pension systems.

Led by Chairman Dexter Paine and Managing Partners Kevin Schwartz and Angelos Dassios, Paine Schwartz currently manages $5.7 in assets for investors such as the District of Columbia Retirement Board and the Connecticut Retirement Plans and Trust Funds, the Journal reported. It raised $1.7 billion for its latest investment vehicle, which closed last month and was 19% larger than a predecessor pool.