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1、Finding value in PE marketsMarket insight reportBrought to you byIn partnership withT M F M A R K E T I N S I G H TContents03ESG reportingWhen it comes to ESG reporting, we shouldnt let pretty good be the enemy of perfect06The role of technologyHas technology helped managers to remain operationally
2、robust?09Finding value in Latin AmericaBrazil provides PE investors with a real route to LatAm opportunities12Finding value in Asia PacificAnalysing where investors look for opportunities in the wake of the pandemic15Finding value through innovationDynamic reporting and data visualisation tools are
3、set to improve GP/LP relationships18Finding value in ESGAn APAC perspective21Finding value in EMEACan the European Green Deal unlock opportunities for private equity investors?23Finding value in the GP/LP relationshipMaintaining strong ties has become more important than ever with the current move t
4、owards remote workingWE MAKE A COMPLEX WORLD SIMPLETMF Group is the leading provider of administrative support services, helping clients access someof the worlds most attractive markets no matter how complex swiftly, safely and efficiently.With some 7,800 experts in-house, on the ground in over 80 l
5、ocations we are the only companyworldwide to provide the combination of fiduciary, company secretarial, accounting and taxand HR and payroll services essential to the success of businesses investing, operating andexpanding across multiple jurisdictions.www.tmf-Thats why over 60% of the Fortune Globa
6、l 500 and FTSE 100, and almost half of the top 300private equity firms, use us.FINDING VALUE IN PE MARKETS | February 2021www.privateequitywire.co.uk | 2T M F M A R K E T I N S I G H TESG reportingWhen it comes to ESG reporting, we shouldnt let pretty good be the enemy of perfectIn his 2020 letter t
7、o CEOs, BlackRock CEO Larry Fink wrote that the investment risks presented by climate change “are set to accelerate a significant reallocation of capital, which will in turn have a profound impact on the pricing of risk and assetsaround the world”.ESG risks are now becoming as important to the way m
8、anagers think about their portfolios as traditional market-related investment risks, prompting many PE firms to consider what is most important to them, from an ESG perspective, and how best to codify it within their ESG policy.In his letter, Fink goes on to say that resilient and well-constructed p
9、ortfolios are essential to achieving long-term investment goals: “Our investment conviction is that sus-tainability-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustain-able invest
10、ment will be a critical foundation for client portfolios going forward,” he wrote.It is hard to disagree with the fact that today, ESG factors represent a secular trend that is only going to continue to evolve over the next decade. In times past, there have been various moments of interest, in an in
11、vesting context, such as portable alpha and 130/30 strategies, which became all the rage among investors, only to then fizzle out.But ESG investing, and the myriad implications associated with it, is no fad. This is now a bona fide core element of how institutional allocators assess private market m
12、anagers.“ESG really is the question of the hour,” says Howard Eisen, Head of Fund Services Sales for North America, TMF Group. “I would say this feels more durable and more structural and that it is not simply a fad. Rather, it is an ethical and existential issue for a growing number of people.”Majo
13、r financial institutions like BlackRock are taking a lead on ESG, paying careful atten-tion to how they integrate ESG factors into their fund portfolios and focusing intently on ESG. They have to, given that they expect companies they invest with to do the very same thing.FINDING VALUE IN PE MARKETS
14、 | February 2021www.privateequitywire.co.uk | 3T M F M A R K E T I N S I G H T ESG really is the question of the hour. I would say this feels more durable and more structural and that it is not simply a fad. Rather, it is an ethical and existential issue for a growing number of people. Howard EisenA
15、nd whereas in the early days of ESG investing, say 15 years ago, there was a fair degree of scepticism over why fund managers would seek to prioritise sustainability, potentially diluting the financial returns on offer, this mind-set has increasingly faded into the background.“When ESG first came to
16、 the forefront, the biggest argument against it was whether the components of ESG were compatible with return expectations sought out by investors. There were many people who did not see the consistency and that if you put ESG factors ahead of fundamental factors when investing, you would reduce ret
17、urns. How could you elevate virtue over profit and have that be commercially viable?“The world is now broad and diverse enough such that there are opportunities to make money if you keep ESG factors high, if not at the top, of ones list of priorities,” says Eisen.One of the unique challenges, howeve
18、r, is that while there is a surfeit of information in the public markets, with technology providers able to create a consistent frame-work to rank ESG factors, there is no uniform way of gathering and reporting ESG data within private markets.Nobody yet agrees on what is the right set of ESG fac-tor
19、s and even if they did, there is still no consistent way to efficiently gather, rate and rank ESG information.“Both on the GP side and the allocator side there is a continuing and steepening slope of attention and resources being applied to ESG. People are attempting to engineer solutions so that a
20、PE or VC manager might be able to gather and apply ESG data in a consistent manner across their portfolio. The best approach is to have an independent body similar to say ILPA rather than a commercially driven organisation, to develop an ESG reporting standard, with input from industry partici-pants
21、,” argues Eisen.Of course, there are ways for GPs to demonstrate to investors that they are taking ESG risks seriously in theirportfolios, such as by asking companies to adhere to SASB reporting, or by demonstrating to investors which UN Sustainable Development Goals their strategies are aligned wit
22、h. Indeed, the Task Force on Climate-related Financial Disclosures (TCFD) is helping to drive adoption of ESG reporting among corporates, both in public and private markets.This is certainly helping to bring ESG transparency to a higher plane, but private markets remain at some distance from arrivin
23、g at a uniformly agreed-upon ESG reporting standard.As Eisen is quick to point out, this is a fast-evolving concept and the goalposts will inevitably move.“Like so many other things, the best way to tell how this is going to play out is to follow the money. The man-agers are focused on expanding the
24、ir client base. And if a growing amount of money, and a growing number of allocators, are elevating ESG considerations within their investment programmes, there is no question that the economic incentives to managers mean that they have to commit resources to this.“If you go to the websites of large
25、 allocators who really embrace ESG, such as some of the large university endow-ments and public pension plans, they themselves are fairly vague with respect to this issue of an ESG standard.“It starts at the top of the food chain with national gov-ernments. The Paris Climate Accord is the closest we
26、ve come. You have different regulatory regimes in the EU, the US, Latin America, Asia and if we cant agree on regula-tory issues, which tend to be fairly black and white, how are we going to arrive at a uniformly accepted standard on ESG issues, which are not black and white?“We will make progress b
27、ut I doubt that we will ever achieve global harmony on ESG that every country, and every investment firm, accepts. Were going to have to accept the fact that we shouldnt let pretty good be the enemy of perfect,” explains Eisen.FINDING VALUE IN PE MARKETS | February 2021www.privateequitywire.co.uk |
28、4T M F M A R K E T I N S I G H TTMF Groups global clients have started taking ESG issues more seriously, across all shapes and sizes of manager, according to Eisen. If investors want more ESG transpar-ency, managers have to respond in kind.“Investors want to see these issues advance and if youre an
29、emerging manager in growth mode, or a mid-sized manager aspiring to the next level, youre going to want to make sure you can respond to investors needs,” he says.And even though private market managers have to work hard to overcome the issues of how best to gather and rank ESG data in a consistent m
30、anner, it is not as if there is a lack of data. Indeed, ESG data provided by both public and private companies continues to improve.One of the questions managers need to ask themselves is how best to apply ESG data across their fund portfolios, which might hold a diverse number of assets spanning in
31、dustrial, software, healthcare sectors and so on.“The data is available but it will depend on the following: a) how efficiently it can be extracted; b) what are the standards that you determine to be the most important? andc) how is the data applied consistently to get an ESG ranking that makes sens
32、e across the entire portfolio, from Fund I through to Fund XX?For managers and allocators alike to make sense of ESG reporting, and to meaning-fully apply benchmarking, it will be necessary to rank different parts of the portfolio, at the individual sector level, using an ESG taxonomy; especially fo
33、r generalist PE funds. For a specialist healthcare-focused fund, for example, the same ESG ranking could apply at the wider portfolio level.“For me, it really comes down to addressing the disparate opinions of what is impor-tant under the ESG umbrella, and how to apply ESG rankings to different comp
34、anies operating across industry sectors,” states Eisen.He adds: “You could make a bold statement in your ESG policy that you only invest in companies using supply chains that have no association with human rights abuses. But how does that apply to an advertising agency, for example, where there is n
35、o supply chain?“There cant be a one-size-fits-all approach. I think there will need to be a taxonomy that can be applied by GPs in different ways to different companies, based upon sector, productthings like that. But the question will always remain: What is important to you? Is it more important to
36、 have gender diversity in senior positions? Is it more important to lower your carbon footprint, or to ensure there are no human rights issues related to corporate supply chains?”There are so many facets to how managers need to think about ESG factors. But one thing is for sure: this is a trend that
37、 shows no sign of stopping. With climate risk, diversity and inclusion, and closer scrutiny on supply chains, all coming to the fore in recent times, managers cannot afford to take their eye off this increasingly relevant, secular theme. nFINDING VALUE IN PE MARKETS | February 2021www.privateequityw
38、ire.co.uk | 5T M F M A R K E T I N S I G H TThe role of technologyHas technology helped managers to remain operationally robust?2020 was arguably a defining moment for the pri-vate funds marketplace, as technology or more broadly, digitalisation helped fund management groups maintain business as usu
39、al in the face of extraor-dinary circumstances.In the main, firms had already been on the path towards digitalisation to varying degrees, and had the technology in place, prior to Covid-19; but what the pan-demic did do was to accelerate the pace of adoption to support operational activities.“Its re
40、ally been a case of making sure the infrastructure was there to enable a broader business use of technol-ogy tools such as MS Teams, Slack, etc. Do they have the bandwidth in their infrastructure? This is something global firms have had to look at over the past 12 months,” com-ments Oliver Sinclair,
41、 Funds Services & Capital Markets Application Portfolio Lead at TMF Group.Technology is becoming an adjunct, an enabler to support GPs, as they steadily modernise their operating model. And while it is difficult to offer broad generalities on the pace of technology adoption, there are a few key area
42、s where technology has made its mark over the last 12 months: 1) Virtual fundraising; 2) Virtual ODD; and 3)global travel, it has been a game changer. For example, UK-based Tenzing Private Equity, a tech-focused investor, was able to raise GBP400 million in just nine weeks, with-out conducting any f
43、ace-to-face meetings, as reported by Private Equity International on 7 September 2020.Another example is Waterland Private Equity Investments, who closed Waterland Private Equity Fund VIII with a hard cap of EUR2.5 billion in three months in a fully virtual capacity.This is evidence of video confere
44、ncing technology improving productivity levels.“I would say a fund marketer is going to have a much higher success rate with existing investors,” says Howard Eisen, Head of Fund Services Sales for North America, TMF Group. “For new investors, it is hard to establish anything more than introductory r
45、elationships, in the vir-tual realm. Theres an old saying that people do business with people they want to do business with. I dont think the virtual environment is the right format to really get to know a new manager.”He goes on to suggest that a first derivative impact of technology on the current
46、 environment is how technologyhas enabled the flow of documents i.e. the subscrip-tion process, the capital call process and reduced the amount of friction, “to allow managers to continue to operate and raise capital in this environment”.Anja Grenner is Head of Fund Services Sales for Luxembourg, TM
47、F Group. The Grand Duchy is a popular fund jurisdiction for many of the worlds leading private equity and real estate groups, as well as an increasing number of new managers. Grenner observes that last year many of the new managers extended their fund launch dates and fundraising activities into Q1 and Q2 2021.“They knew that without making the acquaintance of investors it just wouldnt work,” says Grenner. “ForVirtual AGMs. The