Side Letter: UK DC schemes get boost; Tesco’s £1bn-plus stake sale; Ares’ climate culture

Happy Thanksgiving to our readers in the US! Today's edition of Side Letter will be slightly abridged and will return to full strength on Monday. Here’s today's brief, for our valued subscribers only.

Just happened

PE for DC: as many as 18 million UK pension savers may benefit (Source: Getty)

Major development for DC schemes
Some breaking news this morning as Side Letter was going to press: UK defined contribution schemes are a step closer to being able to invest more in illiquid asset classes such as private equity. A working group convened by various UK governmental bodies that includes 20 DC pensions has released a guide outlining six key areas to help schemes better understand and ultimately invest more in private markets.

A key focus of the guide is on value over cost – something that has been a sticking point over the years. “In our view, an excessive focus on cost could result in a missed opportunity to secure long term value for members in the future,” Joanna Asfour, a managing director at Partners Group, which was part of the working group, said in a statement on the back of the guide’s release. “The guides also encourage a change in mindset to support investment in less liquid assets, although collective action by the industry will be required for this shift to truly happen.”

We’ll have more on this development later today. For now, check out these pieces on PE’s opportunity for more DC capital:

Secondaries sale in aisle three
Staying with Old Blighty, the corporate pension scheme of the nation’s biggest supermarket chain is in the final stages of offloading a private markets portfolio worth between £1 billion ($1.2 billion; €1.2 billion) and £1.5 billion, our colleagues at Secondaries Investor report (registration required). Tesco Pension Fund brought a bundle of private equity, growth equity, private credit and infrastructure fund stakes to market over summer as part of a long-term de-risking strategy and re-balancing, sources told Secondaries Investor. The sale is understood to not be linked to the UK’s LDI crisis, which began in mid-October.

From one Canadian to another
In another episode of LP musical chairs, Eugene Esmonde, a former principal in the direct private equity team at CPP Investments, has joined fellow Canadian BCI, according to LinkedIn. Esmonde, who spent nine years with his former employer, has relocated to BCI’s New York office to co-lead its TMT team. “I am looking for great people to join the team in NYC at the senior associate/principal and senior principal/director level,” he posted. Esmonde is the latest in a string of LPs that have jumped ship this year, as Side Letter noted last month.

Essentials

Creating a climate culture
Enacting climate policies at firms with thousands of staff can be easier said than done. Ares Management, for its part, has found joy in “decentralising and democratising the work”, the firm’s head of ESG, Adam Heltzer, told delegates at PEI Group’s 2022 Responsible Investment Forum: Europe in London last week. Ares has created a “community” of employees that is entirely independent from its ESG function; launched in 2021, the Climate Action Group aims to facilitate firm-wide collaboration on climate-related issues across each of the firm’s investment strategies, our colleagues at New Private Markets note (registration required).

The initiative – made up of around 40 employees across different departments and asset classes – meets annually and holds quarterly check-in calls to discuss emerging ideas and guidance on climate strategy. “Rather than saying, ‘Let’s reach net-zero by 2050, and here’s a very convoluted plan to get there’, let’s get everyone together and plan by asset class,” Heltzer said. With expectations around ESG engagement and data collection ramping up, there is “a huge opportunity” for the Climate Action Group to “accelerate this work” by sharing best practices across asset classes, he added. GPs struggling with their own approaches to the climate crisis may want to try something similar.


Today’s letter was prepared by Alex Lynn with Adam Le.