Side Letter: IR Forum, remote fund commitments, linking ESG to fees

Updates from PEI's Investor Relations, Marketing & Communications Forum; a new fund for green assets; and a fund for which green-ness is linked to fee breaks. Here's today's brief, for our valued subscribers only.

They said it

“We’re swimming in hand gel.”

A managing partner at a London-based private equity firm tells Side Letter over the phone that his firm’s office is open (and coronavirus-safe) and ready for return-to-work business.

Just happened

Turn on, tune in and invest

Some limited partners are still not convinced about the feasibility of fully remote fund commitments. That is to say: taking a new GP relationship from initial meeting to subscription papers without ever being in the same physical space.

Said one fund investor at our fully virtual Investor Relations, Marketing & Communications Forum, which kicked off yesterday: “It would be extremely difficult. Our model is extremely people oriented. The bar [for establishing the relationship] is always very high and video conferencing makes it difficult to operate.” The event is conducted under Chatham House rule, so speakers can’t be identified.

“Zoom is OK for solid relationships that existed beforehand, but you can’t create new ones,” the LP continued. This is an understandable position, but probably an untenable one.

The opportunity cost of delaying decisions due to operational difficulty amid covid-19 has not so far been high, with fundraising processes “just getting pushed to the right”, the same investor noted. With M&A markets relatively quiet, there wasn’t much to miss. As markets open up, however, inactivity will start to cost: “You don’t want to miss a whole vintage. [The] M&A market is starting to open up so there is pressure to dance.”

  • The virtual forum continues today with a great roster of sessions. Check out the agenda here.

ODDO move

ODDO BHF Group has launched its first primary private equity fund. It is seeking €200 million for its “Environmental Opportunities” fund, which will invest in deals “related to the energy transition and environmental challenges” through primaries, secondaries and co-investments. ODDO BHF – a wealth manager and investment bank with €110 billion under management – is a relative newcomer to PE. It acquired a PE unit in 2018 and launched a secondaries fund that year.

More green = more green

An interesting development from the world of agri investing: Australian manager Gunn Agri Partners will link the sustainability performance of its assets to the fees it is paid by LPs for the fund it is currently raising. As Daniel Kemp reports: “the metrics measured will include carbon sequestration, carbon abatement, levels of biodiversity, input use and others, although managing partner Bradley Wheaton could not give further details at this stage on the structure of how these would be linked to fees.”

We’ve seen examples of fund level credit facilities being linked to non-financial metrics, such as this one secured by Eurazeo and this smaller one secured by Quadria Capital. But this is the first instance we’ve come across of manager fees linked to environmental, social and governance.

The devil will of course be in the detail, and there isn’t much of that yet. Whether it is carry or management fee that flexes; how sustainability KPIs will be verified; and the margin by which fees move in the event of sustainability shortfalls are all key questions. Subscribers to Agri Investor can read the full report here.


Vesting schedule

Is your Patagonia vest sitting idle now that you can’t go to the office? The New Yorker offers some suggestions as to how the home-working exec can continue to extract value from the ubiquitous garment. Our favourite? The make-shift home putting green: “To get a real golf course feel, brag to a houseplant about how well your stocks are doing.”

Dig deeper

Institution: New Mexico State Investment Council
Headquarters: Santa Fe, US
AUM: $26.96 billion
Allocation to private equity: 11.76%

New Mexico State Investment Council has agreed to commit up to $75 million across four private equity funds, according to the agenda from its August 2020 investment meeting.

Highlights from NM SIC’s August 2020 investment committee meeting:

  • The institution has invested up to $75 million in four private equity funds: $50 million to Bain Capital Fund XIII; $15 million to Crosslink Ventures IX; $5 million to Cottonwood Technology Fund III; and $5 million to Tramway Venture Fund II.
  • Prior to its most recent investments, NM SIC had already committed $195 million for the year to private equity funds. Its 2020 pacing plan calls for $300 million to $400 million in PE commitments.
  • New Mexico’s buyout strategy is its largest, with the pension having invested $3.8 billion across 101 funds since its inception, according to the agenda.
  • The pension’s portfolio consists of 109 active funds and 25 managers that have made new commitments since 2011, a meeting document showed.
  • Buyout, growth, special situations and venture capital, which fall under New Mexico’s private equity asset class, each experienced net losses for Q1 2020.

Vince Smith serves as NM SIC’s chief investment officer and deputy state investment officer. Prior to joining the pension in 2010, Smith was CIO of Kansas Public Employees Retirement System. Steve Moise is the system’s state investment officer. He also serves as managing member of Moise Livestock Company, according to LinkedIn.

For more information on New Mexico State Investment Council, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Toby Mitchenall with Adam Le.

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