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Pension funds back private equity move into RI

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  • Pension funds back private equity move into RI

GLOBAL - The £28bn (€32bn) Universities Superannuation Scheme (USS) is one of a number of pension funds to support the introduction of guidelines for responsible investment (RI) by private equity firms.

USS, the UK's second largest pension fund covering 378 UK universities and academic institutions, said the nine guidelines developed by the Private Equity Council (PEC) demonstrated "the leaders in this sector recognise the importance of environmental, social and governance issues in the selection and management of their assets".

The PEC, a US-based research organisation and resource centre to develop, analyse and distribute information about the private equity sector, currently has 13 members including some of the big players: Apax Partners; Blackstone Group; Kohlberg Kravis Roberts & Co; Madison Dearborn Partners and Permira.

It also revealed the guidelines "grew out of a dialogue between PEC members and a group of the world's major institutional investors, which took place under the umbrella of the United Nations-backed Principles for Responsible Investment (PRI)".

Peter Moon, chief investment officer at USS, said: "As a long-term and responsible investor trying to implement RI policies across all asset classes, we are pleased to see some of the highest profile US-based private equity managers signing up to a detailed set of guidelines in this area."

The guidelines include calls for private equity firms to "consider environmental, public health, safety, and social issues associated with target companies when evaluating whether to invest in a particular company or entity, as well as during the period of ownership".

Firms in this sector are also asked to "seek to use" governance structures that have appropriate levels of oversight in areas such as risk management and auditing; and to be accessible to, and engage with, relevant stakeholders either directly or through representatives of portfolio companies.

Other guidelines require private equity to "seek to grow and improve the companies in which they invest for long-term sustainability and to benefit multiple stakeholders, including on environmental, social and governance issues", and to help achieve this the PEC members said they will with portfolio companies to try and "improve performance and minimise adverse impacts in these areas".

The remaining guidelines included:

Retain the commitment to comply with national, state and local labour laws; Maintain strict policies prohibiting bribery of public officials, both foreign and domestic; Respect the human rights of those affected by investments; Provide timely information to limited partners on issues associated with RI guidelines, and Encourage portfolio companies to pursue the guidelines in a way that is "consistent with their fiduciary duties".

David Russell, co-head of RI at USS, said: "Working together, pension funds and private equity firms have a responsibility to address environmental, social and governance issues in our investments. USS will continue to work with PEC, its members, and other private equity firms to ensure that the risks and opportunities that these issues present are addressed."

The UN PRI revealed it had launched a dialogue with the private equity industry, including the PEC, a year ago to discuss the best way to address ESG issues in line with the PRI principles.

James Gifford, executive director of UN PRI, said: "Today's announcement by the PEC that its members have adopted these comprehensive guidelines on responsible investment marks a major step forward in our efforts to elevate ESG issues at all companies, public and private. We are pleased that the PEC has committed to meeting with us twice annually to have a sustained dialogue on these guidelines and ESG issues."
 
Douglas Lowenstein, president of the PEC, said: "Private equity is all about investing for growth and maximizing returns to our investors. Today's announcement explicitly and formally affirms PEC members' commitment to fully integrating these responsible investment guidelines into both our pre-investment and post-investment processes."

Other pension funds involved in the development of the guidelines included the two largest US pension funds, the California Public Employees Retirement Systems (CalPERS) and the California State Teachers Retirement System (CalSTRS).

Ted Eliopoulous, Interim CIO at CalPERS, said: "We view these guidelines as a groundbreaking commitment by one of our major asset classes to integrate ESG into investment decision-making and ownership activities. We will monitor their implementation rigorously, and we hope the PEC's recognition that embracing ESG issues is a key to attracting and retaining investment will send a signal to others to follow suit."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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