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PSERS bet big on this scrubs brand whose IPO boosted a Steelers owner’s billions

The Pa. school pension fund’s investment looks pretty solid at the moment, but the company faces challenges.

A banner for Figs hangs on the New York Stock Exchange last Thursday, noting the first day of trading for online scrubs seller Figs. Among its investors before the IPO was PSERS, the Pennsylvania Public School Employees' Retirement System.
A banner for Figs hangs on the New York Stock Exchange last Thursday, noting the first day of trading for online scrubs seller Figs. Among its investors before the IPO was PSERS, the Pennsylvania Public School Employees' Retirement System.Read moreCourtney Crow / New York Stock Exchange / AP

Figs Inc., which sells stylish hospital scrubs, has pulled off a successful public stock offering that has enriched a Pittsburgh investor along with Pennsylvania’s beleaguered school pension fund and other early backers, at least on paper.

Investors’ appetite for attractive new stocks appears to have paid off for Thomas Tull, a billionaire tech investor and Steelers part-owner, by more than $20-$1, while quadrupling the PSERS pension fund’s investment — if it can cash out its shares at today’s bullish prices.

Early private investors typically face a “lock-up” period, often six months, before they can sell all shares. The stock could gain value or crash before the shares are sold.

Still, a big Figs payday would be a boost to beleaguered PSERS chief investment officer James Grossman. His team’s complex and often secretive investments have been criticized by a growing reform faction of PSERS trustees who say the fund could do better in low-cost index funds.

PSERS, the Public School Employees’ Retirement System, also faces an FBI probe over its land purchases in Harrisburg and had to publicly restate its investment results, forcing younger teachers to pay more for retirement. The pension system has hired three law firms and an investment advisory firm to help defend its staff and oversee investments amid queries from the FBI, U.S. Attorney’s office in Philadelphia, and a federal grand jury.

Figs raised about $570 million, selling about 26 million shares at $22 each, on the New York Stock Exchange last Thursday. The price has since risen, peaking early Tuesday at $36, before slipping to $31.76 at Tuesday’s end.

» READ MORE: Internal PSERS documents show how Pa’s biggest pension fund got key financial calculation wrong

Only about one-quarter of the company’s shares have been put on the market — the rest remained with PSERS, Figs founders Catherine “Trina” Spear and Heather Hasson, New York venture-capital firm Viking Global, and Tull, who is Figs’ largest investor.

Figs, which bypasses stores to target fashionable health-care workers online, has reported rapid growth, with profits of $50 million on sales of $263 million last year, up from negligible profit on $110 million in sales a year earlier.

The current share price implies that Figs, based near Los Angeles, is now worth about $5.2 billion, about 20 times last year’s sales and more than 100 times its 2020 profits.

Figs is now worth more than such larger, more-profitable but slower-growing public companies as Urban Outfitters or WSFS Financial Corp., with their thousands of employees. Figs employs about 200.

Tull agreed to invest $50 million in Figs in May 2018, according to the company. The IPO raised the value of the 84 million shares owned by Tull’s holding company, Tulco LLC, to more than $1.8 billion.

He sold 21 million shares at the $22 offering price, pocketing about $460 million, while holding on to the rest — which was still worth more than $1.8 billion Tuesday, as the price rise covered the value of the shares Tulco sold.

PSERS’ return is also rich, though it spent more and has less to show for its more recent Figs bet. The school pension invested $85 million in Figs in a secret deal last September and now owns shares worth about $320 million — which could enable the fund to nearly quadruple its money, if the price stays that high until PSERS can cash out.

» READ MORE: FBI probe of massive Pa. pension fund seeks evidence of kickbacks or bribery, subpoenas show

A growing faction of PSERS trustees has lately voted against investing in companies such as Figs, noting the disappointing record of other private investments over the last 10 years.

Two days after the Figs investment was approved in a members-only “executive session” by the PSERS board, Tull donated more than $700,000 each to the Biden Victory Fund and to Republicans’ U.S. Senate campaigns. In a statement, Tull said there was ‘no connection” between his donation and the state fund’s investment.

PSERS also invested $100 million in Tull’s investment holding company, Tulco, in December 2018, which Tull promised to invest in companies such as Figs that use digital technology to boost marketing and sales.

Officials at PSERS and Tulco won’t say how much of Tulco’s giant profit from Figs could now be passed along to the pension fund. PSERS valued its Tulco holdings at $148 million last summer on a public-disclosure report, a 48% increase in two years, but listed it at only $107 million as of January, according to an internal document obtained by The Inquirer.

The Inquirer reported that PSERS had agreed to invest as much as $100 million in Figs last year. And Figs confirmed in public filings this year that PSERS had spent $85 million buying Figs shares. But PSERS has still not publicly disclosed that it made that investment, preferring to refer to the deal in public only in code, as “Project Newton,” as in the well-known cookies, Fig Newtons.

» READ MORE: A teachers union wants most PSERS trustees off the board

PSERS has not confirmed when it will be able to sell any of its 9.9 million shares. “We have no comment at this time,” spokeswoman Evelyn Williams said Tuesday.

Figs faces a lawsuit from Careismatic Brands, maker of Dickies and other rival scrubs lines, that the partners are using a stolen business plan and had exaggerated claims about germ-killing fabric and charity donations of free gear.

Lawyers for Careismatic have demanded hundreds of millions of dollars in damages. Such an award could cut returns to investors such as PSERS.

Figs acknowledged the lawsuit in its SEC filings, but says its claims are “without basis or merit,” and has denied using anyone else’s proprietary business plan information.