For planet and profit

With the private equity industry under heavy scrutiny by regulators in the US and UK, many firms are pursuing socially responsible investment strategies as a way to improve their image and take the lead in a potentially lucrative area.

In February members of the Washington, DC-based lobbying group Private Equity Council (PEC) – including Bain Capital, Permira, Apollo Global Management, The Carlyle Group and Kohlberg Kravis Roberts – signed up to a set of guidelines calling for firms to consider environmental, public health, safety and social issues associated with target companies. They also pledged to prohibit bribes to public officials, respect the human rights of those affected by their investments and ensure that funds do not go to companies that use child or forced labour.

Meanwhile, the British Venture Capital Association (BVCA) has formed a group of experts to promote the role of private equity in investing in renewable energy and clean technology. Among the members which will be giving advice and guidance to investors, governments and companies are Blackstone Cleantech Venture Partners, HgCapital, Amadeus Capital Partners and CT Investment Partners.

Both moves come amid efforts to increase oversight of private equity on both sides of the Atlantic. Legislation was recently introduced in the US Senate that would require funds with more than $50 million in assets to register with the SEC, while the European Parliament passed a resolution calling for an examination and strengthening of the regulatory regimes affecting hedge funds and private equity.

Nathan Williams, communications manager at the BVCA, said in an interview a key focus for the group's environmental lobbying efforts is to ensure that uncertainty around tax and regulatory issues doesn't impede what could be a major growth industry. “Businesses which are going to combat climate change are also the ones that can potentially produce the best returns,” he said. “What we are trying to get across to investors, government, media and other stakeholders is that the potential is enormous…but we need to make sure we have a framework in place which allows us to make the most of them.”

KKR has already touted the advantages of its socially responsible mandate, as it recently said that it saved $16.4 million in 2008 by making three of its portfolio companies more environmentally friendly. While image is important, it's these bottom-line benefits that will be key to ensuring more firms jump on the responsibility bandwagon in future.

Louis Friedman, the former chief of mergers and acquisitions at investment bank Bear Stearns, has launched a private equity business called Flexis Capital that is structured as a “pledge fund”, allowing investors to choose which deals they will fund. The firm is aiming to write cheques for between $25 million to $100 million per deal.

Sun Capital Partners, a turnaround specialist, has purchased a larger position in auto parts company Accuride with the $70 million purchase and modification of the company's senior secured term loan. Sun will get warrants to buy up to 25 percent of the company's common stock in the transaction. The firm's hedge fund, Sun Capital Securities Fund, already owns a 10 percent stake in the company.

More than 300 limited partners in Lehman Brothers Merchant Banking IV and Fund IV (Europe) have voted to support a management spin-out proposal. The spin-out will be funded through a joint venture between the management team and Reinet Investments, the investment vehicle of South African billionaire Johann Rupert.

Odyssey Investment Partners has closed its fourth fund on $1.5 billion – above its original target of $1 billion. Most of the investors in the firm's $750 million third fund returned for Fund IV. Odyssey, based in New York and Los Angeles, will invest for control and management buyouts of mid-market companies, mostly in the US.

Auto parts giant Delphi has cancelled a $477 million deal for the acquisition of its global steering and half-shaft operations by Platinum Equity that was struck in December 2007. Delphi, which entered bankruptcy in 2005, will sell the business instead to its former parent company General Motors. The division will become a stand-alone business under GM's ownership.

Steven Schwarzman, co-founder and chief executive of New York-based alternatives giant The Blackstone Group, has said prices in the secondaries market are “artificially” low as cash-desperate investors flood the market with fund interests for which there are very few buyers. Schwarzman said during an earnings call he didn't believe any Blackstone interests had been unloaded on the secondaries market.

Nancy-Anne DeParle, a managing director with CCMP Capital, has left the firm to become director of the White House Office of Health Reform. DeParle focused on healthcare investments at CCMP and served on the boards of companies including Boston Scientific, Medco Health Solutions and Cerner. DeParle previously served in the White House under President Bill Clinton.

The Carlyle Group has raised its second mezzanine fund with commitments of $553 million and is targeting mid-market companies through junior debt and minority equity securities in leveraged buyouts, recapitalisations and growth financings. The firm closed its debut mezzanine fund on $436 million in 2006. Carlyle's mezzanine arm was established in 2004 and is co-headed by managing directors Leo Helmers and James Shevlet Jr.

Publicly listed Allied Capital has reported a $1 billion loss for the full year 2008, driven in part by declines in the value of its investment portfolio. Allied's audit firm expressed “substantial doubt” about the firm's ability to continue as a going concern in its 2008 audit opinion. Allied chief executive William Walton has stepped down and been replaced by John Scheurer, previously a managing director of the company.

Element Partners has raised $486 million for its second cleantech-focused fund after attracting investments from Dutch funds of funds manager Robeco Private Equity and US pensions the Los Angeles Fire and Police Pension and the Los Angeles City Employees' Retirement System. Element raised its first cleantech fund in 2006, collecting $284 million.