Side Letter: SEC’s PE fee warning; KWAP’s ESG checklist; SoftBank’s $3bn LatAm bet

The SEC has private fund fee disclosures in its crosshairs. Plus: one of Malaysia's LP giants shares its ESG checklist for GPs and SoftBank is making a $3 billion bet on Latin America. Here's today's brief, for our valued subscribers only.

They said it

“If international investors, whoever they are, are keen to invest their capital in the UK, that is something that is good news for our economy.”

UK Chancellor Rishi Sunak said on Tuesday that PE appetites for British listed companies reflected well on the economy, per Reuters.

Just happened

Gensler’s fee warning
Private funds managers were geared up for a more aggressive stance from US Securities and Exchange Commission chair Gary Gensler, but his latest comments may still have come as a surprise. In testimony before a Senate committee on Tuesday, Gensler said the commission is exploring “reforms” for private funds around conflicts of interest and disclosure of fees.

“I believe we can enhance disclosures in this area, better enabling pensions and others investing in these private funds to get the information they need to make investment decisions,” Gensler said, per a transcript of his testimony. “Ultimately, every pension fund investing in these private funds would benefit if there were greater transparency and competition in the space.”

Gensler’s use of the word “reform” was significant, Igor Rozenblit, former co-head of the SEC’s private funds unit and founder of consultancy Iron Road Partners, tells affiliate title Buyouts (registration or subscription required).

The SEC’s main tool to implement reform is through rulemaking, which could indicate it leaning towards a more streamlined process for fee and expense reporting. This could take many forms, including one that looks similar to the template provided by the Institutional Limited Partners Association.

KWAP priorities
Malaysia is home to some $400 billion of LP capital “flying quietly” into PE, as PEI reported back in May. These institutions aren’t typically known for their prolixity, so we were particularly interested to hear Rizal Mohamed Ali, a vice-president for responsible investment at Kumpulan Wang Persaraan, telling delegates of Private Equity International‘s Responsible Investment Forum: APAC Investor Day this morning what the 141 billion ringgit ($34 billion; €29 billion) pension looks for in potential GPs. What do you need to know?

  • KWAP’s pre-investment review involves looking at whether GPs have a formal commitment or mission statement in place; whether they adhere to any international standard initiatives, such as PRI; and whether they make any commitment to ESG in their fund documents or side letters.
  • It also considers whether firms have qualified and adequate resources to implement ESG, such as dedicated staff.
  • The pension expects GPs to identify material ESG factors and risks in their own pre-investment processes, and to engage their portfolio companies on ESG.
  • It wants firms to disclose their ESG methodology via quarterly and annual reporting.

Triago appointments
Placement agent Triago has named Matt Swain, formerly a partner, and founding partner Victor Quiroga as co-heads of the Americas, newly created posts in New York, per a Thursday statement. Swain has been promoted to managing partner as part of the move, which follows the appointment of Valerie Auffray, former head of investor relations at Apposite Capital, as partner and head of UK operations earlier this month.

They did the math

PE’s time to shine
PE is expected to be the most available source of financing for European M&A over the next 12 months, according to a survey by law firm CMS. Close to three-quarters of respondents, which comprised corporates, non-bank lenders and PE firms, also said PE firms are better placed than strategic buyers to take advantage of buying opportunities due to a need to get their fund deployment schedules back on track. PE firms deployed €186.9 billion across 1,139 buyouts in the region during H1 2021, more than double the €79.9 billion invested over 603 deals during the first six months of 2020.

Essentials

Help wanted
With Gensler’s SEC also increasing its focus on ESG, law firms are recruiting specialist attorneys to meet rising demand for regulatory advice and scrutiny from investors, our colleagues at New Private Markets report (registration or subscription required).

This month, Kirkland & Ellis hired Sofia Martos as a New York-based partner in its ESG and impact practice – the latest recruit in a hiring spree that has seen this team grow from three to seven partners in five months. Likewise, Travers Smith added Simon Witney as a senior consultant focused on sustainable finance and ESG last year, while Latham & Watkins and Herbert Smith Freehills are growing their capabilities in this space by training attorneys and, in HSF’s case, actively recruiting.

SoftBank’s LatAm return
SoftBank has committed $3 billion to its second Latin America Fund, per a statement. The Japanese tech conglomerate plans to explore opportunities to raise additional capital for the vehicle. Its 2019-vintage $5 billion Latin America Fund I has so far generated an 85 percent net IRR in US dollars. The fund has deployed $3.5 billion across 48 companies with a fair value of $6.9 billion as of 30 June, including 15 of Latin America’s 25 unicorns.


Today’s letter was prepared by Alex Lynn with Carmela Mendoza.