CalSTRS anticipates greater LP control

The head of one of the world’s largest private equity programmes spoke of potential changes to give limited partners more influence over the way general partners invest their money and manage their portfolios.

Margot Wirth, director of private equity at the $133 billion California State Teachers’ Retirement System, said that the “pendulum” of bargaining power had swung in the direction of the LP during the tough fundraising environment of the financial crisis.

“I don’t know whether LPs will continue to agree to blind-trust arrangements,” said Wirth. “I think the mechanisms will be there to give LPs more control.”

Wirth made the remarks Thursday during a panel at the PEI Responsible Investment Forum. The panel discussed whether limited partners should undertake more active oversight of their investments in private equity to ensure they are managed responsibly.

The mechanisms will be there to give LPs more control. Margot Wirth

Alongside Wirth, Ulrick Dan Weuder, who heads up social responsibility in investments for Danish pension fund ATP, outlined how his organisation has the mechanism in place whereby it can “step out” of an individual investment of one of its GPs, if the investment is unacceptable in terms of ATP’s investment mandate. It has not, however, yet had cause to exercise this right.

Carol Kennedy, a senior partner at fund of funds group Pantheon Ventures, underlined the fact that the private equity industry has in fact been implementing the principles of environmental and socially responsible investment. “The industry has been doing more than it thinks,” she said, but added that it has not been seen to be doing so.

Kennedy also noted that it is the large buyout firms – the firms which affect the greatest number of stakeholders – that have led the charge in terms of formalising and integrating ESG practices, but that LPs have a role to play in encouraging the mid-market to follow suit.