Side Letter: ATP in the spotlight, ILPA on diversity, corporate debt

Should individuals get rich if they make lots of money for public pension funds? It's not the first time the debate has reared its head. This time it has happened in Denmark. Plus: ILPA's diversity roadmap, corporate loan alarm bells and why credit – not equity – holders could be the best drivers of ESG. Here’s today's brief, for our valued subscribers only.

Just happened

Danish PE twister

Private equity for a public pension is a tricky balancing act. Make too much money, and the carry going to individuals looks out of whack with public sector earnings. Make not enough, and … well …

ATP, the DKr 886 billion ($129 billion; €119 billion) Danish public pension pot, found itself in the former camp at the start of year as its PE programme, which has performed well for the pension, also paid out significant sums to its longstanding senior private equity principals. It made headlines in the Danish press, because – as a major public equities shareholder – ATP has been a vocal critic of high salaries among its portfolio. Here is Henrik Vass (paywall), CEO of the Danish PE association, telling newspaper Berlingske why pensioners have got a good deal from ATP’s private equity programme. We’d love to hear from any Danish contacts on this:

In unrelated ATP news, the pension has offloaded its stakes in VIA Equity‘s growth capital funds, selling them to various European secondaries houses. Sister title Secondaries Investor has the details.

VIA began life in 2006 as a venture investor with one major LP in the form of ATP. Over time, the firm shifted more into growth equity and brought in fellow pension PFA. Said ATP’s CEO Bo Foged of the exit: “We want to simplify our organisation and, to a larger extent, participate in the broader Danish financial ecosystem using the experience we have gathered over the years in future partnerships with other players in Denmark.” A source with knowledge of ATP told us the VIA funds no longer made sense politically for the pension. The firm had moved away from the early-stage venture space, and also backed online casino business Cego, both of which made the reasons for backing the manager less compelling for a public pension.

ILPA’s diversity and inclusion roadmap

The Institutional Limited Partners Association is upping its push to enhance diversity and inclusion in private markets. The organisation is releasing a Diversity and Inclusion Roadmap, along with a best practice submission form so that industry participants can propose additional resources.

Top-level categories include “demonstrate organizational support for D&I”, “attract and promote diverse talent”, “build and sustain inclusive cultures”, “apply D&I to investment strategy” and “measure and benchmark D&I progress”. Subcategories include links to an array of resources, from links to a company that provides compensation and pay equity analysis, to the NAACP’s Job Finder site for recruitment, to the ILPA standard DDQ and its diversity template for GP Funds.


(Teetering?) towers of corporate debt. The OECD has signalled its alarm that corporate debt has reached record highs while offering poor protection for lenders. Persistently low interest rates mean markets are awash with cash seeking a return and borrowers are taking advantage of the situation. However, more cash is being loaned to BBB-rated firms that could turn to junk in an economic downturn.

Credit to pick up the ESG baton. Credit funds, despite what you might think, could be better placed than equity investors to drive sustainability, writes David Creighton, an old-hand at emerging markets investing, for sister publication Private Debt Investor. “Consider the cost of implementing new filter systems on waste or paying employees a higher wage: such things can affect carried interest,” he says. “Flip to a similar credit scenario where these ESG deliverables can be contractually implemented through covenants or conditions contingent on disbursal of further funds. The credit manager is most interested in managing risk rather than generating a return, and is therefore better positioned to effect change.”

Going up in their estimation? The brewing $17 billion buyout of lift business Thyssenkrupp is an indication that private equity firms are no longer viewed as locusts in Germany, says Bloomberg: “Private equity firms are now getting a warmer reception in Europe’s largest economy as industry heavyweights ink the continent’s biggest buyout deal in a decade.”

He said it

“Unfortunately for investors in private equity, private equity firms essentially stop deploying capital when high-yield spreads rise above 6.5% – which is also the time when returns in private equity are the best”

In the third note in a series on crisis investing, Verdad Capital’s Dan Rasmussen lays out why higher borrowing costs, short windows of opportunity, and high degrees of uncertainty prevent private equity firms from taking advantage when deal valuations are low.

Dig deeper

Institution: Montana Board of Investments
Headquarters: Helena, US
AUM: $1.53bn
Allocation to alternatives: 25.00%
Bitesize: $10m-$50m

Montana Board of Investments has committed $30 million to Mountain Capital Partners II and $45 million to Ascendant Capital Partners III. Mountain Capital Management’s second fund will be used to invest in distressed energy companies throughout North America. Ascendant Capital Partners’ third vehicle will be used to invest in early-stage companies throughout Asia-Pacific within the consumer goods, healthcare and technology sectors.The $1.53 billion US public pension currently has an allocation of 12 percent to private equity.

For more information on Montana Board of Investments, as well as more than 5,900 other institutions, check out the Private Equity International database.

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Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LeRod JamesJohn Bakie and Graham Bippart

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