European LP News, July 2011

Carbon Rises on Investor Agenda

Committed to halving its carbon output by 2025, the United Kingdom is considering the introduction of mandatory carbon reporting requirements for companies.

However, fund managers are already being pressured by limited partners to reveal the environmental impact of portfolio companies, according to law firm Osborne Clarke.

“It is fascinating to see that whilst the Government is concerned about the possible overburdening of companies with reporting requirements, it is apparent from our informal conversations with private equity houses that the push for environmental reporting is starting to come from investors anyway,” said David Ferris, a partner at the law firm, in a press release.

Some investors already have issued guidelines on the matter.

Airport operator BAA, for instance, advises managers of its pension fund investments to consider “social, environmental and ethical conduct as matters which are relevant to both the current and anticipated future financial performance of the investment.”

However, Mark Florman, CEO of the British Private Equity & Venture Capital Association, has warned that limited partners risk “killing” emerging market funds if they insisted too stridently on environmental criteria.

The government will consult until early July 2011 on whether to impose mandatory reporting from April next year.

Where Western PE Fears to TreadChina Investment Corp. (CIC), China’s $300 billion sovereign wealth fund, looks likely to be the first foreign investor in Russia’s newest private equity fund.

The Russia Direct Investment Fund should be officially launched in June with $10 billion of state money, though its aim is to tempt foreign investors traditionally wary of the country to invest up to $40 billion over the next five years.

CIC boss Lou Jiwei has told Chinese state news that the SWF would be ready to invest in Russia due to the country’s “huge development potential.”

“We hope Russia’s investment landscape will keep improving and we expect the Direct Investment Fund can facilitate to neutralize the risks,” Jiwei said.

According to Russia’s Interfax agency, the Kuwait Investment Authority is also lined up to join the Direct Investment Fund, although no large global private equity funds have yet been attracted.

Tchenguiz Quits Aberdeen FundElsina, the largest shareholder in listed fund of funds Aberdeen, has moved to liquidate its 33% stake.

The investment vehicle is controlled by Vincent Tchenguiz, whose property company Peverel went into administration in March and who is selling his $43 million villa in the south of France

Aberdeen’s board has announced a tender offer of 67.5p per share, slightly below the fund’s average share price of 69p during the six months to June.

The fund was managed by Bramdean Asset Management until 2009, when Tchenguiz ousted Bramdean founder Nicola Horlick along with the rest of the board.

Now managed by Aberdeen, two-thirds of the fund is invested in private equity and the remainder in hedge funds, across a total of 21 funds.

Its estimated total net asset value is $188 million.

Shareholders Question Listed Private Equity Model

Disgruntled investors in Swiss-listed Private Equity Holding (PEH) was expected to attempt to replace its entire board at the fund’s annual general meeting on June 14.

Paris-based Mantra Investissement and Franco-American investor Guy Wyser-Pratte hold 5.1% of the fund of funds and had hoped to convince other shareholders of the need to radically overhaul its investment strategy.

The rebels said their action was motivated by the board’s “failure over a period of years to reduce the exceptionally wide discount to net asset value (NAV) at which PEH shares trade.”

They also want PEH to immediately end commitments to new investments; halve compensation to the board; and consider an orderly liquidation of the fund’s €188 million ($271 million) portfolio, half of which is allocated to buyout funds, a quarter to venture funds and a quarter to special situations funds.

Mantra and Wyser-Pratte also questioned the viability and appropriateness of listed private equity funds, noting that, globally, most traded at a significant discount to their net asset value.