By Dan Primack
June 7, 2013

FORTUNE — Later this month the Rhode Island State Investment Commission will hold its regular monthly meeting, during which it may decide to launch a secondary sale process for its limited partnership position in a private equity fund managed by Wellspring Capital Management. At issue is Wellspring’s investment in United Sporting Companies, a South Carolina-based wholesale distributor of firearms, hunting supplies and marine accessories.

Unlike many other state pension systems, Rhode Island SIC doesn’t have formal guidelines related to investments in controversial areas like guns. But after Newtown the SIC decided it didn’t want exposure to any companies that produced or distributed “assault weapons” like Bushmaster AR-15’s (which are listed among USC’s offerings). So it asked Wellspring to sell the asset.

My understanding is that Wellspring actually had been seeking a buyer pre-Newtown, but that the school massacre made the divestiture much more difficult (just ask Cerberus, which so far has been unable to unload Bushmaster parent Freedom Group). It did have a bit of inbound interest early this year, but currently the process seems stuck somewhere between sluggish and inactive.

According to SIC minutes, there also was an expectation that USC would stop distributing such products after January 1, but that never happened. Either due to a change of heart or due to miscommunication between Wellspring and the SIC.

RELATED: Is Cerberus still indirectly supporting the NRA?

Unless a mystery buyer pops up with a term sheet in the next few days, SIC is going to have to make an interesting choice during its June meeting. Maintain its stake in the Wellspring fund, perhaps under the rationale that it didn’t have any anti-firearm policy in place when the original commitment was made. Or try to do a one-off secondary sale at sub-optimal conditions (given that buyers would know they have a seller whose primary motivation is not financial).

Should be interesting… Also worth noting that SIC has exposure to fellow USC investor Summit Partners, but not in the relevant fund.

Sign up for Dan’s daily email newsletter on deals and deal-makers:

You May Like