Side Letter: Partners’ social trade-off, Dutch $500m ESG play, UBS bulks up

We've got under the skin of Partners Group's planned trade-off between returns and social impact. Plus: A Dutch pension seeks responsible returns in the US lower mid-market and UBS builds up its advisory muscles. Here’s today's brief, for our valued subscribers only.

Just happened

PG’s plan to make PE better

As the covid-19 crisis was unfolding in mid-March, Partners Group announced a plan – unrelated to the pandemic – to make private markets a better place to be (see Side Letter, 17 March). In short, it would mean ploughing some of the investment gains at the portfolio company level back into initiatives to improve the lives of the portfolio companies’ employees through a “stakeholder benefits programme”. We spent some time with executive chairman Steffen Meister (pictured) to dig into the plan a little more. Here are the headlines:

How does this differ from properly taking account of the ‘S’ in ESG? Because it may well end up hitting returns rather than enhancing them. Some may be “paid back in the form higher valuations for better companies – but they might not if there is no value attributed to them by the next buyer,” says Meister. In a worst-case scenario, investors would be looking at 2.35x versus 2.5x, he suggests.

This is not simply a reaction to the bad press that the wider PE industry continues to get, particularly in the US, Meister says. However, he does note that the public view of the industry is “unfortunately not reflective of the reality that we are pretty good corporate citizens”.

The current crisis won’t sideline the initiative. “We remain highly motivated to develop the final format […] which will prepare us to take care of portfolio company employees during any such future events.”

PGB + RCP = ESG

Pensioenfonds PGB – one of the 10 largest Dutch pensions, with more than €30 billion in assets – has just signed up Chicago-based RCP Advisors to pursue a $500 million US lower mid-market programme with a heavy sustainability focus.

According to a joint press release: “Responsible investment and climate criteria will be part of every investment decision. PGB and RCP will work together to have companies in the portfolio report on a/o (renewable) energy use, emissions, environmental policies, anti-corruption measures and diversity. Every company in the portfolio will be tracked on whether it contributes to reaching the UN Sustainable Development Goals.”

UBS adds secondaries muscle

UBS‘s private funds team has made its second senior secondaries advisor hire this year by poaching PJT Park Hill’s Sandro Galfetti to lead its European activity. In March, it added Houlihan Lokey‘s David Andrias to focus on GP-led secondaries. Read this as UBS building back up in a market niche recently dominated by a handful of banks, including the likes of Evercore, Greenhill, PJT Park Hill and Campbell Lutyens.

Subscribers to sister title Secondaries Investor can read the full scoop from Adam Le or look at the latest results of its exclusive research into the most active advisers in this area.

They said it

“Given the fundraising challenges and restrictive lending environment, we have seen a number of sponsors exploring alternative financing solutions, looking to increase fund firepower through structures such as NAV debt facilities at the fund level”

Debt advisory firm DC Advisory notes financial sponsors’ increased appetites for alternative fund level finance in an update to clients.

Essentials

High stakes. What’s the potential size of the market for minority stakes in GP management companies? Around $90 billion, according to Investcorp, which yesterday published a paper on the strategy. The firm – which is reportedly seeking $750 million for its debut fund focusing on the strategy – says that figure represents the total enterprise value of alternatives managers that have raised between $1 billion and $10 billion over the last decade.

Stirling hires. European PE firm Stirling Square Partners has appointed a consultant and a data scientist to a newly formed “innovation and sustainability team”. Press release here.

GP-led insight today. There is still time to sign up for today’s webinar on how GP-led secondaries and preferred equity help GPs during the covid-19-induced downturn. Registration and details here.

Dig deeper

Institution: Teacher Retirement System of Texas
Headquarters: Austin, US
AUM: $148.0bn
Allocation to alternatives: 35.0%
Bitesize: $100m-$200m

Teacher Retirement System of Texas has confirmed $385 million worth of private equity commitments, a contact at the pension informed Private Equity International.

The commitments comprise $200 million to Clayton, Dubilier & Rice Fund XI, €125 million to Hg Genesis 9 and $50 million to Hg Saturn 2.

The $148.0 billion US public pension has a 14.0 percent current and target allocation to private equity.

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


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Today’s letter was prepared by Toby MitchenallIsobel Markham, Adam Le, Rod James, Carmela Mendoza and Alex Lynn


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