Side Letter: ESG confusion; Bain’s debut $1bn; Commonfund survey

ESG reporting is still confusing for the majority of portfolio companies. Plus: Bain seeks $1 billion for its debut insurance fund and midday drinking in Cannes shows post-covid exuberance in the industry is back. Here’s today's brief, for our valued subscribers only.

Just happened

ESG headaches: Private markets have ‘significant hurdles to navigate’ (Source: Getty)

ESG confusion
Despite the progress made in ESG reporting in recent years, a report by KEY ESG has found that widespread confusion over how to report such data remains an issue for portfolio companies. The study found that while 75 percent of private equity funds are required to report on ESG to their LPs, 90 percent of portfolio companies are unsure of how to provide their owners with the data they require.

There appear to be a few things driving this confusion. Geography plays a large part, with around 75 percent of US GPs saying they are unclear about which Europe-based fund regulations apply to them. Also, 20 percent of GPs surveyed said they began independently measuring ESG in the past decade and are struggling to align their in-house methodology with emerging industry standards. Another roadblock is the time taken to gather the requisite information: with many firms taking up to 12 weeks to collect ESG data, issues including missing reporting deadlines and failing deals at the point of sale have become a reality.

Private markets have “significant hurdles to navigate to successfully drive ESG”, said Heleen van Poecke, KEY ESG’s chief executive. As our colleagues at New Private Markets (registration required) reported this week, a growing number of LPs are carefully vetting GPs’ ESG intentions and operations, both internally and within their portfolio companies. More here (registration required).

Insuring gains
Bain Capital is seeking $1 billion for its debut insurance-focused fund, according to a presentation for New Mexico State Investment Council‘s investment council meeting this week. Bain Capital Insurance Fund will focus on life, health and property and casualty insurers, plus annuity providers, insurance distributors, insurance services companies and related technology companies, consultant Mercer said at the meeting, which our colleagues at Buyouts watched. While the vehicle is the first in its series, the people deploying the fund aren’t a new team, according to Chris Cassidy, New Mexico SIC’s private equity portfolio manager, who said: “This is not a typical Fund 1.” New Mexico approved (registration required) a $60 million commitment to the vehicle.

At IPEM, the boozy lunch is back
Good times were had by those private equiteers flocking to Cannes after a volatile 2022. The IPEM Conference kicked off on Monday night with a welcome gala at Hotel Barrière Le Majestic on the beachfront. There was no slowing down on Tuesday when wine was brought out in the middle of the day. Participants toasted being back to the conference circuit without fist bumping and company-mandated safe distances. Still, they shared concerns about where valuations may fall, the rising cost of debt, a slowing M&A market and a painfully slow fundraising market. We’ll be delving into the key discussion points from the Croisette in our weekly commentary later today.

They did the math

Sector specialists in the US small and mid-market, where GPs take a more hands-on approach, will be the top expected performers in 2023, according to an investor survey by CF Private Equity, the alternative investment arm of the Commonfund. Investors also continue to see above average and high-return potential in venture, co-investments and secondaries. That said, venture’s return potential is more muted this year than in 2022. Secondaries increased the most across strategies year-over-year. The survey was conducted in December with over 150 investors representing over $2 trillion of investable assets.


No pain, no gain
Over coffee in Mayfair the other day, the head a global placement agent told Side Letter that one of the biggest questions GPs now ask is how “painful” an LP is likely to be: “Are they annoying? Do they ask a million questions? Are they likely to band together with other LPs to lobby against [the GP]? Do they have strong views on the duration of subscription credit lines?” The current fundraising environment is “as challenging as I’ve ever seen in my career”, he added. So, anecdotal evidence that LP capital is as scarce as it has ever been, but some GPs are still reluctant to give away the store.

Today’s letter was prepared by Adam Le, Helen de Beer, Carmela Mendoza and Madeleine Farman.