Side Letter: Fink on fiduciary duty vs ESG, PSERS pares back on PE, Thoma Bravo performance data

The tension between fiduciary duty and sustainability is front and centre today: BlackRock's Larry Fink spells it out, while a keynote at our CFOs and COOs Forum Europe gives a more nuanced view. Here's today's brief, for our valued subscribers only.

He said it

“Some of those returns have been challenged, those have been very challenging vintage years. It’s part of the reason why we’re back into the secondary market right now, looking to lighten up in some of those older vintages from the portfolio.”

Pennsylvania Public School Employees’ Retirement System CIO James Grossman told a board meeting that the pension may shed some of its older, pre-crisis fund holdings (see below for more).

Just happened

The ESG challenge laid bare
On BlackRock’s third quarter earnings call on Tuesday, chief executive Larry Fink highlighted the challenge fiduciary duty can pose to sustainable investment, specifically in the US.

“Our Labor Department has required in all investments, as a fiduciary, to ensure that everything you do is about maximisation of return. So, we need to continue to drive technology and information to show how climate change is investment risk.”

BlackRock is working on creating Aladdin Climate (Aladdin, being the firm’s weighty portfolio management software) to help it do just that. Fink said the firm is seeing widespread conviction among its investors that “climate risk is investment risk”, and he reiterated the firm’s goal to have “sustainability as an overlay in everything we do” in its fundamental equities and fixed income platforms within a year. However, he did point out BlackRock’s duty to continue to serve all clients.

“Let me be clear, some clients still do not believe in climate change, and we’re working with them, we’re trying to show them why we believe it is. But if a client is still seeking to invest in an index that happens to have hydrocarbons, we as a fiduciary, we’re going to continue to invest for them on their behalf. It is their money and not our money.”

Check out our Friday Letter from last week on how fiduciary duty fits with the coronavirus pandemic.

But on the fiduciary duty flip side…

Will covid-19 shift the PE industry’s focus squarely onto business viability at the cost of environmental, social and governance compliance? “No”, says the chief operating officer, Europe at credit shop Muzinich & Co.

Speaking at the CFOs & COOs Forum Europe, Ersilia Molnar said that ESG compliance tends to reduce the overall risk of a portfolio, making it more important now than ever.

“It’s a proxy for good management, because if management is aware of the big issues – resource efficiency, social pressures and their impact on top line growth, if the management team has purpose and is able to attract better talent – these are all elements that will improve performance and ultimately will help investors’ returns.”

Muzinich is in the process of agreeing its first loan with terms contingent on ESG key performance indicators, she added.

Very blue Wolf

The results of the US elections in November are a key determinant of how public markets will perform by year-end, said Joshua Cherry-Seto, CFO and COO of New York-based Blue Wolf Capital Partners at PEI’s CFOs & COOs Europe Virtual Experience 2020 on Tuesday. The PE world “should be praying and looking for a clean Democrat sweep” in the US political system, which will mean support for people, municipalities and businesses, he added. “A clean sweep of the dead wood, rotten wood in government right now if the Democrats take all three houses – which God willing happens – will have a very positive effect on markets.”



Ever wondered why investors have been flocking to software specialist Thoma Bravo‘s funds? Check out our performance watch chart for a ready reckoner of IRR and TVPI.

Stapled up

Staple Street Capital, created by former Carlyle exec Stephen Owens and Cerberus Capital’s Hootan Yaghoobzadeh in 2010, has blasted through its $400 million target to hold a “one-and-done” on its third fund on $520 million (Buyouts subscription required). UBS worked as placement agent on the fundraising.

Secondaries sale? Let’s Penn-cil one in

Pennsylvania Public School Employees’ Retirement System is considering offloading fund interests to help reduce its private equity exposure to 12 percent of its total portfolio, sister publication Buyouts reported yesterday. Selling certain non-core fund stakes could help PSERS reach its new target allocation quicker, according to CIO James Grossman. PSERS has sought to tap the secondaries market before, in 2015 and 2019, says sister title Secondaries Investor (subscription or registration required).

Diversity drive

The National Association of Investment Companies, an industry association and network of diverse-owned private equity firms and hedge funds, has teamed up with the American Investment Council on a new diversity partnership. As part of the agreement, AIC members will become part of the advisory committee for NAIC’s Women in Alternative Investments Initiative, which supports and works to increase the number of women, particularly women of colour, entering the private equity and hedge fund industries. The partnership will collaborate on internship and mentorship programmes, thought leadership, and legislative and policy issues.

Dig deeper

Institution: Pennsylvania Public School Employees’ Retirement System
Headquarters: Harrisburg, US
AUM: $55.10 billion
Allocation to alternatives: 35.90%

Pennsylvania Public School Employees’ Retirement System has confirmed $368.75 million-worth of private equity commitments to three vehicles, a contact at the pension informed Private Equity International.

The commitments comprise of $168.75 million to Insight Partners Opportunities Fund I, $100 million to Polaris “Jewel” Capital Fund V and $100 million to GreenOaks Capital Opportunities Fund III.

The $55.10 billion US public pension has a 16.0 percent target allocation to private equity that currently stands at 12.90 percent.

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

Today’s letter was prepared by Toby Mitchenall with Isobel MarkhamAdam LeRod James and Carmela Mendoza.

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