Just happened

The ESG elephant in the room
Private markets participants are making considerable strides when it comes to ESG data quality, reporting and benchmarking. However, increasing data collection requirements are leading to friction between those GPs that are willing to bear the additional cost, and those looking to pass it on to their LP base, our colleagues at New Private Markets report (registration required). Speaking at last month’s Infrastructure Investor Global Summit in Berlin, Ben Alves Walters, senior investment director at Cambridge Associates, said: “With respect to the quality of data, there is definitely an elephant in the room, which is: the [higher] quality it is, the more costly it is to extract.”

Regulatory requirements and LP demands have led to a rapid increase in the quantity and sophistication of data that GPs are required to gather; as a result, the market for ESG data services is growing at speed. “Where is that cost borne?” Walters asked. “Is that in-house as a GP, because these are our fundamental principles? Or do we feel forced to actually pass these costs on to the underlying investors?”

Responses to the latter option could be mixed. Some LPs may be happy to bear these costs; others may see ESG as less meaningful and these costs as an additional, unwanted fee drag to returns. A recent survey by law firm Dechert found that cost considerations were the most commonly cited barrier to ESG adoption among EMEA and APAC-based GPs.

The question of who pays for data collection adds another element to an ongoing tussle between GPs and their investors on ESG data. As Side Letter has noted previously, some industry participants are starting to feel that, when it comes to ESG data, you can have too much of a good thing. The situation, according to NPM, appears to be turning into something of a tug of war between LPs and GPs, with some of the latter unwilling to provide what they see as extraneous information.

Mind the gap
Debt is bridging the gap where there is a shortfall of buy-side capital in continuation fund transactions, our colleagues at Private Funds CFO report (registration required). Lenders have an opening to offer GPs NAV loans, as well as a form of sub line/NAV hybrid, to mitigate differences between the vehicles’ deal sizes and ticket amounts from secondaries investors. The instruments represent small portions of activity in the GP-led funds market, industry sources said, but market buzz suggests they are seeing increased interest from borrowers.

Nate Walton, head of Ares Management’s PE secondaries strategy, expects fund-level leverage in continuation vehicles to become more common, rather than the norm. This is because most buyers manage their own funds of secondaries interests and prefer to lever those, or simply want to keep leverage at the fund level they are investing in at a minimum. That said, Martins Marnauza, a partner at Coller Capital, sees opportunity for growth in this approach to the continuation fund market. Even if investors in a fund differ on their preferences and restrictions on leverage, he suggests dedicated sleeves could be offered to appease those who want exposure to leverage, and those who don’t.

NAV loans and continuation funds have both historically been used by GPs that want to deliver cash back to LPs without parting with their assets. It’s early days, of course, but it now seems as though they’re able to combine the two.

Apex’s acquisition
MJ Hudson has reached an agreement to sell its data and analytics and business outsourcing divisions to fund solution provider Apex Group and an affiliate of Genstar Capital. The aggregate cash consideration for the deal is up to approximately £40 million ($49.7 million, €45.5 million), per a statement from MJ Hudson. The two divisions represent “substantially all of the group’s remaining operating divisions”, per the statement, with the data and analytics unit housing its ESG consulting, IR and marketing, and investment advisory teams, among others. The AIM-listed asset management consultancy said it expects to hold a general meeting for shareholders to approve the disposal on 3 May.

MJ Hudson also said it intends to give notice to the UK’s Solicitors Regulation Authority of the proposed closure of its legal business. That unit will be wound down by 20 April, MJ Hudson’s board confirmed via a spokesperson. In March, MJ Hudson agreed to sell its UK fund management business to the head of its regulatory solutions practice, Mike Booth, and the head of its fund specialist division, Will Roxburgh, through a management buyout. The four units within the business – its advisers, fund management, consulting and fund administration subsidiaries – will rebrand as Khepri, per a statement. Both transactions are subject to regulatory approval.

Troubled MJ Hudson was plunged into turmoil following accounting issues that surfaced in late 2022. In February, its external auditors, EY, resigned, followed closely by the resignation of its founder and CEO Matthew Hudson. The company’s work in the PE space has included the likes of investment funds, secondaries, LP representation, co-investments, M&A and private fund formation.

Essentials