Side Letter: Temasek’s impact wishlist; PE’s take-private powerhouse; BT’s $1bn mandate

So, you want one of the world's largest investors to back your impact fund? Read below. Plus: Why the UK could be on the receiving end of a take-private tsunami, and track record still tops ESG when it comes to manager selection. Here's today's brief, for our valued subscribers only.

Just happened

Singapore swing: Temasek’s Valentin talks move to impact with New Private Markets’ senior editor Toby Mitchenall

Temasek’s impact wishlist
Greetings from a packed-out room this morning at PEI’s inaugural Impact Investor Global Summit in London! Temasek’s deputy head of EMEA, head of PE investments and head of impact investing, Benoît Valentin, has just finished his opening keynote and Q&A. The Singapore state investor made its entry into impact investing last year with a $500 million allocation to LeapFrog Investments, marking the largest single commitment to a specialist impact investment manager.

Temasek’s impact journey is just beginning: the roughly S$400 billion ($288 billion; €274 billion) fund is eyeing more direct impact investments, plus several additional GPs to back. Here’s what it’s looking for:

  • You must be an impact native fund. Temasek is looking for emerging markets, pure-play impact players – it’s not interested in large-cap players with newly established impact funds.
  • Differentiation is crucial, whether that’s domain knowledge or in using data. “Just selling your impact story is not enough… you have to make sure your story is different from the competition,” Valentin said.
  • Tech is a must – managers who are not tech-savvy or tech-enabled will “struggle massively” to scale in Temasek’s target regions such as emerging markets, he added.

Take-private takeaways
As fund sizes soar and tech stocks plummet, the public markets may well prove fertile hunting ground for private equity firms. The UK, in particular, could hold special appeal. That was one of the key takeaways from a Schroders event on Tuesday in London. “The most efficient way if you’re a very big fund is to buy very big companies,” said Duncan Lamont, Schroders’ head of strategic research, at the event. “That means public companies are much more on the radar than 10, 15 years ago.”

A few things to know about the UK’s take-private landscape:

  • Targets: For assets under $10 billion, the most suitable and desirable businesses are those with potential to be scaled internationally, such as consumer services, financial services and industrials including aerospace and defence.
  • Competition: PE buyers may encounter competition from activist investors, which have proven keen to snap up undervalued UK companies.
  • Opportunity: Large UK companies still source a significant chunk of revenues outside the domestic market, meaning investors can gain international exposure at comparatively cheap prices.

The total value of UK listed companies taken private by PE firms leapt seven-fold to £29.3 billion ($36.4 billion; €34.6 billion) last year, compared with £4 billion in 2020, according to business advisory BDO. The number of companies being taken private also rose to 19 last year from just five in 2020. PEI looked into this burgeoning love affair and the implications for the UK’s PE market in our December Deep Dive.

Essentials

New Horizons
The UK’s BT Pension Scheme has awarded a $1 billion PE mandate to Federated Hermes, per a statement. The Horizon III mandate will be managed by Hermes GPE, an $11 billion PE firm and wholly owned subsidiary of Federated Hermes, and deployed over three years. As with previous mandates – Horizon I (2015) and Horizon II (2018) – it will invest 50/50 through funds and direct co-investments.

BTPS and Federated Hermes have history together. The pension founded Hermes Investment Management in 1983 and sold a majority stake to US asset manager Federated Investors in 2020, before fully exiting last year. In previous years, Canadian giant CPP Investments completed a number of secondaries processes to enable BT Pension to partially cash out from its Hermes mandates via a continuation fund and reinvest in newer ones, as our colleagues at Secondaries Investor reported in November. It’s unclear whether Horizon III involved such a process.

Track record on top
Track record is still the deciding factor when it comes to manager selection, despite the additional focus being placed on ESG and diversity, equity and inclusion in recent years. This is according to a survey of family offices, funds of funds and endowments, from law firm Seward & Kissel, which found that more than 40 percent see ESG and investment team diversity as the least important issues when sourcing managers, while over 90 percent said the most important factor was investment strategy, our colleagues at Buyouts report (registration required).

Some, however, are taking these issues much more seriously: Natalia Ilmark, senior investment manager at Skandia Mutual Life Insurancetold PEI in March she was prepared to “deselect teams” that are not diverse. “Diverse teams perform better,” she said. “There is plenty of data that show this.”


Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Helen de Beer