Side Letter: CIC’s action plan; Mitsubishi’s new vehicle; Alaska’s in-state freeze

China's $1.35 trillion sovereign wealth fund is taking action to reduce carbon emissions, first at home and later in its giant investment portfolio. Plus: Japan has a new buyout fund and Alaska Permanent Fund is cutting back on in-state investing. Here’s today's brief, for our valued subscribers only.

Just happened

Taking action on carbon

Sovereign wealth fund China Investment Corporation is the latest LP giant to place carbon emissions under the microscope. The $1.35 trillion institution’s Action Plan for Operational Carbon Neutrality, published last week, outlines a series of measures CIC will take to mitigate three major sources of its own emissions: purchased electricity, data centre and products, and employee travel. These will include encouraging low-carbon travel for personnel and a programme of afforestation for higher carbon sink.

Though this particular action plan is very much introspective in focus, CIC also signalled future interest in mitigating the footprint of its investment portfolio more broadly. “In the next step, CIC will devote greater effort to scientific reasoning, strengthen capacity building, and strive to reduce the scale and intensity of carbon emissions in its investment portfolio by stage,” the statement said. With an alternatives portfolio worth many tens of billions, according to PEI data, such efforts could have a substantial impact.

CIC first established a formal ESG ‘policy framework’ in 2021, per its 2020 annual review. “Guiding principles” included: integrating ESG factors into decision-making processes; integrating ESG factors “throughout the lifecycle” of investments; and raising awareness and understanding of ESG among CIC’s employees. Despite the institution’s growing interest in this space, it has previously voiced frustration at a lack of standardisation around ESG reporting, Private Equity International reported last year.

“Sustainable investment has a promising future, but not without its challenges,” CIC president Weimin Ju told delegates at the 2022 Asian Financial Forum. “The assortment of ESG rating systems adopted by regulators and ESG rating agencies, combined with a lack of appraisal systems, cannot provide enough incentives to investors. We hope that regulators can enhance policy coordination to create uniform rating standards and the incentives mechanisms. Such policy guidance will increase market share of sustainable investment and boost its healthy development.”

China aims to reach peak carbon dioxide emissions by 2030 and carbon neutrality by 2060.

Mitsubishi’s new vehicle
On the morning PEI launches its latest Japan Report, it seems fitting that we bring you news of a new Japanese fund. Marunouchi Capital, the PE subsidiary of Mitsubishi Corporation, has held a first close on its third buyout vehicle, per a statement. Marunouchi Capital Fund III has collected 40.2 billion yen ($299.6 million; €272.6 million) against a 100 billion-yen target. The firm collected 100 billion yen for its 2017-vintage Marunouchi Capital Fund II, which included a 40 billion-yen commitment from Mitsubishi Corp and 25 billion yen from MUFG, according to PEI data.

“Due to management-related challenges caused by a lack of successors, impacts from the covid-19 pandemic and other factors, demand for business successions remains high in Japan,” the statement said. “In recent years, there has also been a rise in the number of divestments of non-core businesses and subsidiaries from listed companies.” You can read more about Japan’s burgeoning corporate carve-out market here.

Alaska’s freeze
Alaska Permanent Fund will stop making new commitments to its in-state PE investing program due to reputational risk and governance concerns, our colleagues at Buyouts report (registration required). The largest US state-level sovereign wealth fund uses Barings and McKinley Capital as the programme’s external managers and had committed $100 million to a fund managed by each manager, according to a meeting presentation.

At the board meeting on 12 April, Alaska’s board voted to pause commitments in the two funds. One of Barings’ co-investment decisions prompted backlash, with some critics claiming that the state fund made a “secret” investment in an Alaskan grocery chain. “The problems that have arisen already are inevitable… What happens if one of the managers decides to lay off 10 percent of its staff from one of their investments? Can you imagine the headlines and pressure on us to step in and prevent that from happening,” said board member Steve Rieger.

Board president Ethan Schutt noted that the fund’s reputation can be tarnished if residents start questioning their intentions and investment decisions, such as why some businesses gain investment dollars and others do not. “I don’t think any of the managers have violated anything. But some of the companies have a weak link to the state,” said CIO Marcus Frampton. On top of public scepticism, Schutt said managing the in-state programme will get difficult if too many trustees refrain from voting because of state ethics regulations.

Multiple public systems have in-state programs dedicated to backing funds that invest locally, with the goal of boosting local economies. Other major systems with in-state programmes include New Mexico State Investment Council, Florida State Board of Administration and New York State Common Retirement Fund.


Asia’s insurance inflows
Asia-Pacific insurance companies are leaning into the private markets. According to the APAC Insurance Investment Landscape report from abrdn and Hong Kong-based consultant Quinlan & Associates – published last week – 39 percent of regional insurers plan to raise their private equity exposure over the next three years. This is behind only private debt, at 41 percent. These rises will likely come at the expense of public equities, to which one-third of insurers are lowering their allocation, and fixed income. For their broader investment portfolios, 73 percent of insurers plan to allocate more capital to international markets. That said, those in South Korea, mainland China, Thailand and Malaysia still prefer domestic markets.

DGB Life Insurance, a Korean institution with 8 trillion won ($5.9 billion; €5.8 billion) of assets under management, is among those with growing appetites for private markets. As Private Equity International noted in November, the insurer is targeting PE and private debt in a bid to raise its alternatives exposure to 15 percent  from 8.8 percent over the next three to four years.

HSBC’s alternatives access
Global fundraising platform iCapital – the largest player in the push to open PE access to non-institutional investors – has partnered with HSBC Asset Management to improve the reach of the latter’s climate tech VC strategy. iCapital will provide a customised white-label product delivering HSBC AM’s strategy to wholesale clients across EMEA and Asia, per a statement. It will offer exposure to early-stage technology start-ups accelerating the decarbonisation and depollution of industries.

HSBC AM has been making a considerable effort to expand its alternatives offering in recent years, establishing a dedicated alternatives arm in 2021 that now employs more than 170 people and had $60.6 billion of combined assets under management and advice as of December.

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

17 April

18 April

19 April

20 April

21 April

Today’s letter was prepared by Alex Lynn with Helen de Beer and Katrina Lau