Side Letter: OpEx winners announced; SEC breaks records; ESG ‘nonsense’

Who are the best value creators in private equity today? Read on to find out. Plus: the US regulator brings a record number of cases against private funds advisers; and PennSERS holds a heated debate. Here's today's brief, for our valued subscribers only.

Just happened

OpEx winners announced!
With soaring inflation, rising interest rates, a tight labour market, ongoing supply chain disruption and a challenging geopolitical and economic environment, a robust value-creation strategy has become ever more crucial. It’s against this backdrop that we’re excited to reveal the winners of our 11th Operational Excellence Awards, which recognise the industry’s best value creators over the last 12 months across three global regions.

You can find all the winners here, and special thanks to our nine external judges, who gave their time to sift through another competitive set of nominations.

The SEC comes a-knocking
The US Securities and Exchange Commission’s promises to scrutinise private equity are coming through in the numbers when it comes to private fund enforcement records. Since January, the regulator has brought cases against at least 27 private fund advisers or their executives, analysis by affiliate title Regulatory Compliance Watch of Commission records shows. That sets a record for the Dodd-Frank era. The previous record, 18, was set in 2018 and again in 2020. In 2012, there were 17 cases, as the Commission mopped up the mess of the global financial crisis and began the still-incomplete job of implementing Dodd-Frank, records show.

If the SEC finds a practice it thinks is problematic and that it believes is widespread, that practice is more likely to be the subject of an enforcement action because the Commission may want to send a broader signal to the industry, Igor Rozenblit, former SEC private funds unit co-head and founder of risk and regulatory services firm Iron Road Partners, told Private Equity International this year. Accelerated monitoring fees and broken deal fees and expenses are examples of widely spread practices that became the subject of enforcement attention.

“A lot of private equity managers take some comfort that their practices are similar to the practices of others in their industry,” Rozenblit said. “As a matter of fact, that increases risk and does not decrease risk.”


Sagemount’s ‘efficient’ raise
New York-based mid-market firm Bregal Sagemount had gathered approximately $2.5 billion of commitments, exceeding its $2 billion target, for its fourth flagship fund as of August, according to documents prepared by Hamilton Lane for the Connecticut Retirement Plans and Trust Funds.

The documents indicate the firm was expecting to hold the final close this month, though it’s unclear whether this has happened yet. A source with knowledge of the fundraise tells Side Letter that the process has been “efficient” and that the vehicle was fully allocated this summer, with only a handful of new LPs added. BSF IV is targeting a 20 percent net IRR and a 2x TVPI, according to the docs.

ESG ‘nonsense’
A debate unfolded at a recent LP meeting of the Pennsylvania State Employees Retirement System. Participants discussed whether the pension should create an impact allocation within its $40 billion portfolio, our colleagues at New Private Markets report (registration required).

In the US, the ESG agenda has become highly politicised. State Senator John DiSanto, who sits on the SERS’ board, asked at the meeting: “Wouldn’t you recommend it would be better for us to concentrate on returns and just invest in more traditional investment vehicles, and not get caught up in all this political agenda and nonsense?” DiSanto also raised concerns about balancing focused impact fundraising with the pension’s need to deploy capital at scale.

Other attendees agreed: investment committee member and State Representative Paul Schemel said impact investments involve making political and social judgements, which, he believes, “exceeds our authority”.

On the other side of the debate, Senator Vincent Hughes’ representative, deputy chief of staff Toni Marchowsky, argued: “I don’t think anyone is asking us to sacrifice our fiduciary responsibility. I think what we’re asking folks to take into consideration is that, if there is an opportunity to improve the lives of Pennsylvanians, and it doesn’t negatively impact our returns, we should look at those.”

One option was suggested by naysayer Schemel, who conceded that PennSERS already offers different investment strategies to defined contribution plan holders – one of which could involve some exposure to impact investing. With ESG becoming increasingly scrutinised in private markets, SERS’ example shows some LPs are still sitting on the fence when it comes to the issue.

Today’s letter was prepared by Alex LynnAdam LeCarmela MendozaHelen de Beer and Carmela Mendoza