Brunei’s abhorrent LGBT stance is unlikely to deter private equity

Precedent suggests the industry won’t distance itself from the country’s $60bn sovereign wealth fund as a result of its laws regarding homosexuality.

2018 felt like the year private equity “got woke”; ESG is now standard, leaders are talking about positive impact and LP dollars are flowing towards funds that promise positive change as well as financial returns.

But that’s only part of the story. Brunei’s government, which invests in private equity through its approximately $60 billion sovereign wealth fund, the Brunei Investment Agency, and the country’s Ministry of Finance, last week announced it would introduce death by stoning for sexual relations between men or adultery.

The Bruneian institutions do not publish details of their private equity programmes, but one global placement agent told PEI that the BIA had traditionally been a well-liked and supportive LP, while other market sources point to significant LP activity with household PE names.

Some of its partnerships have been made public.

Japan’s SBI Holdings, a Tokyo-listed corporation with around ¥5 trillion ($45 billion; €44 billion) of assets under management, launched a shariah-compliant private equity vehicle, SBI Islamic Fund, in 2010 as a joint venture with Brunei’s Ministry of Finance. The pair are investing from the 2016-vintage SBI Islamic Fund II, which is understood to be $100 million in size and includes Saudi Arabia’s Islamic Development Bank as an investor.

SBI Holdings and BIA did not respond to requests for comment.

COPE Private Equity, a Malaysia-focused firm with around M$500 million ($122 million; €108 million) of AUM, jointly invested in domestic tech firm MDT Innovations alongside SBI Islamic Fund II this week. A COPE spokesman tells us the investment in MDT was made separately and independently.

BIA owns 4 percent of listed venture capital trust Draper Espirit, which moved to distance itself from the institution earlier this month. “As an inclusive employer and investor, we naturally abhor the recent announcement in Brunei,” the London-headquartered firm said in a statement, noting that publicly traded shares can be purchased by all investors in the open market.

BIA and the Ministry of Finance are partial shareholders in Fajr Capital, a Dubai-headquartered private equity firm with $700 million of assets under management, according to PEI data. The firm declined to comment.

BIA also owns the Dorchester Collection of luxury hotels, which includes the Dorchester in London and Hotel Bel-Air in Los Angeles. Brunei’s stance on homosexuality has led celebrities such as George Clooney, Ellen DeGeneres and Elton John to call for a boycott of these establishments. Deutsche Bank has removed the Dorchester Collection hotel group from its list of suppliers in support of LGBT rights, according to a statement.

The Dorchester Collection said it is managed autonomously and the laws of Brunei do not apply to its hotels.

Private equity is a long-term game and it would be naïve to assume that fund managers – or other LPs – would immediately sever ties with Bruneian institutions on the back of its LGBT stance. But the country’s Syariah Penal Code Order, which also permits amputation and lashing, was introduced in 2013 and has been implemented over a six-year period – ample time for GPs and LPs to reassess their relationship with the state’s institutions.

Problematic human rights policies and records have not precluded other sovereign wealth funds from participating in the asset class:

Saudi Arabia’s $250 billion Public Investment Fund remains an active investor in private equity despite allegations that the Kingdom murdered journalist Jamal Khashoggi; the $67 billion Libyan Investment Authority had been an active private equity investor prior to the Arab Spring, despite the country’s questionable human rights record; China – an increasingly popular destination for, and source of, private equity capital – has reportedly detained around one million Uighur Muslims for involuntary religious ‘re-education’; and the United Arab Emirates – home to a host of active sovereign wealth funds – has come under fire for multiple human rights abuses.

Few would argue that Brunei’s legislation isn’t abhorrent, but precedent suggests it’s unlikely to have a significant impact on its place in the asset class.