GIC’s private equity investment looks beyond definitive ESG
Singapore’s GIC has said it won’t pass on a private equity investment in a company or fund simply because it doesn’t have the data available to measure its ESG credentials accurately.
The sovereign wealth fund stressed that every fund manager or company is at a different stage of ESG development, so it would still consider giving capital to any that have the potential to generate alpha and improve their ESG performance in the long term.
“(Sometimes) somebody is nowhere (in ESG). But if they're a good investor that we find responsible who maybe has a plan to improve, that doesn't make them not investable. They may well be investable,” said Eric Wilmes, president and head of private equity, Americas at GIC.
“People are at different stages, and so I think it's still too early in the journey for the industry to say it's a black-white litmus test of who you'd give capital to,” Wilmes said during a panel discussion at the Milken Institute Global Conference last week.
“There are obviously others who build their brands and their franchises around ESG investing. From the latter kind, we would certainly expect better and more transparent and logical reporting,” Wilmes said.
Noting the lack of a uniform supply of ESG data, he stressed that GIC tracks ESG data where available and works with fund managers on the goal of making progress on ESG.
“I would say most of the bellwether funds in the industry have significantly increased their investments in the data that's available here, and it's definitely something that we track,” he said.
As of March 2021, GIC invested 15% of assets into private equity, through direct and co-investment, fund investment, and private equity debt, its 2020/21 annual report showed.
GIC’s direct private equity investment is focused on taking minority equity positions and providing junior and senior debt financing in buyouts.
On the other hand, funds strategy aims to identify, and invest with, leading private equity, venture capital, private credit, and special situations funds globally, and grow with them in the long run, the annual report said.
“We have built up a network of over 100 active fund managers. The investment teams add value to the boards and management of the investee companies by providing advice and access to a global network of business links,” it said in the annual report.
GIC doesn’t reveal the size of assets it manages, which are the reserves of the Singapore government. Global SWF, a data platform, estimated that its assets were about $744 billion in July 2021.
IMPACT MATTERS
At the Milken Conference, Wilmes said that, as a sovereign wealth fund, GIC looks at the social impact of private equity investment beyond the investment itself.
It views private capital as an attractive asset class with strong risk-adjusted returns, which can generate money that it can use for Singapore to be able to invest in the community, he said.
“In Singapore, GIC and its sister companies account for about 20% of the national budget every year. So when you think about who's paying for the schools, who's paying for the roads, it’s the efforts of the folks on our team,” Wilmes said.
Still, he stressed that ESG and sustainable investment in the private market is important, but it is to “plant a seed” that is going to take several years to grow.
“These are no quick-flip solutions. So having a type of style of investing that really is focused on longer-term gestation to reap the benefits is very well suited, not for every problem, but for many of the problems we will talk about,” he said.
When it comes to evaluating deals for ESG risks, Wilmes said GIC hopes to invest in businesses that are bulletproof against long-term ESG risks such as climate change, and enables GIC to stay invested for many years.
“There are a whole lot of knock-on effects that can impact many of our businesses if the most dire climate scenarios take place. So as we think about the overall risk and reward of the portfolio, we’re looking to try to diversify and protect ourselves against those, which is why it's fundamentally really critical for us (to do ESG evaluation), especially in these (private equity) positions, we do want to be partners with for a long time,” Wilmes said.
TECH CHANGES
From a macro standpoint, he noted that investors are finding it difficult to locate opportunities at the moment, a challenging environment that he believes will persist for the next few years. At the same time, he said GIC’s portfolio companies continue to perform well.
The situation requires investors to do ground-up investment and continuously focus on the fundamentals of portfolio companies, he said.
“I would say though, there's been an incredible amount of technological change over the course of the last 10 years, in particular, at everywhere we see it impacting many of the industries in which we invest. And I think those tailwinds in particular will continue to accrue and create opportunities for people,” he said.
GIC's most recent investments were its co-investment of a Series D investment of $240 million in American open-source technology provider Grafana Labs, and the Series C funding of $690 million in Singaporean digital content payment platform Coda Payments.