Side Letter: DoL deals ESG blow, CalPERS goes big on secondaries, LP appetite for PE returns

Updated rules from the DoL force fiduciaries to put financial returns ahead of “unrelated objectives” – specifically ESG. Plus: CalPERS re-enters the secondaries ring. Here's today's brief, for our valued subscribers only.

She said it

“Its going to be a no-brainer to have a policy and a strategy on your website.”

Cornelia Gomez of PAI Partners explains the direction of travel on climate risk to delegates at the Responsible Investment Forum: Europe.

Just happened

ESG to the backseat
The US Department of Labor has updated ERISA rules to require private pension plan fiduciaries to put financial returns ahead of sustainability goals, dealing a potential blow to ESG investing. A fiduciary is now prohibited from “subordinating the interests of participants and beneficiaries in their retirement income to unrelated objectives”. The new rules were expected, but came over opposition from many investment advisors and their advocates. The investment community is already working to proactively address the ruling: on BlackRock’s third quarter earnings call last month, chief executive Larry Fink said the firm is working on gathering data to demonstrate how “climate risk is investment risk”.

They did the math

Investor trends. Manager selection activity among investment consultancy bfinance’s LP clients showed increased appetite for private debt and infrastructure funds for the 12 months ending 30 September. Q3, however, saw a broadening of scope in PE activity, with LPs wanting more exposure in APAC and other emerging markets, according to bfinance’s latest Manager Intelligence and Market Trends report.


Performance watch
As earnings season draws to a close, PEI returns with another instalment of its Performance Watch series. First up is Carlyle Group, whose Asia Partners IV and Carlyle Partners IV appreciated in the third quarter of 2020 and enjoyed modest improvements to multiple-of-invested-capital. In a September interview with PEI, the firm’s head of impact Megan Starr said a disaster scenario workshop several years ago helped Carlyle to weather the metaphorical storm of covid-19.

CalPERS’ secondaries push
After going more than a decade without committing to a secondaries fund, California Public Employees’ Retirement System has committed $800 million in the space of a few months. The Sacramento-headquartered pension wrote a $500 million cheque for AlpInvest Secondaries Program VII, having committee $300 million to Adrian’s ASF VIII in June, Secondaries Investor reported.

AlpInvest targets more concentrated positions through portfolio acquisitions and GP-led deals. Ardian is known for acquiring large, diverse portfolios, eschewing the growing GP-led market. Last year CalPERS said it was exploring the expansion of its secondaries investment capabilities to help it reach its $10 billion a year commitment target.

Dig deeper

Institution: Los Angeles County Employees’ Retirement Association
Headquarters: Pasadena, US
AUM: $60.73 billion
Allocation to alternatives: 28.7%

Los Angeles County Employees’ Retirement Association has approved $280 million-worth of commitments to private equity funds, according to the pension’s November 2020 investment board report.

The commitments comprise $150 million to Centerbridge Capital Partners Fund IV and $130 million to GGV Capital VIII, including parallel vehicles GGV Capital VIII Plus and GGV Discovery III. Both commitments are re-ups with the pension’s existing managers.

LACERA’s recent private equity commitments have been to buyout and venture capital vehicles. The pension has a 10 percent target allocation to private equity that currently stands at 11.5 percent.

For more information on LACERA, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Toby Mitchenall with Isobel MarkhamRod JamesCarmela Mendoza and Alex Lynn.

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