Sign of progress for transparency and ESG?; ILPA publishes final sub line guidelines

ESG: Connor Hussey reports that environmental, social and governance ratings agencies, like ISS, Sustainalytics and Vigeo Eiris, are making a push into private markets. These companies have ridden the wave of the green bond market, which surpassed $200 billion in issuance last year, and grew with it. Now, they’re looking to provide their services to the likes of private equity firms and their portfolio companies.

What is interesting about this to me is that the fact that there is a demand for this from private equity suggests some firms really are leaning into the industry’s informal initiative to become more transparent. You can’t get an ESG rating from these companies if you aren’t willing to make additional disclosures of the kind private markets don’t tend to provide.

ILPA: The Institutional Limited Partners Association is doubling down on transparency around subscription credit facility use, writes Alex Lynn from sister title Private Equity International. I covered the draft recommendations a while back, and most CFOs I spoke to were supportive of the transparency initiative – to some extent because a reporting template may help reduce bespoke LP requests and allow service providers to begin offering automation services. (Draft template here, final template in Alex’s article, linked above).

But sources were pretty ubiquitously against reporting two internal rates of return (one with the impact of sub lines, one without). There was at least one exception; a middle-market firm CFO who said they already produce two IRRs.

“I know some people don’t like the idea of disclosing IRR with and without, because it’s just one more thing we’ve got to create, but I think it’s not an unreasonable thing for LPs to ask for,” that person said.

Some also complained to the effect that ILPA wants all subscription facilities to be capital call lines – which are designed to simply bridge capital calls, and have regular clean-down periods. What are often referred to as subscription credit lines are pure revolvers, limited in their use primarily by the LPA – and some LPs want their managers to have that flexibility. And since some private fund strategies are intended to be levered throughout the life of the vehicle, regular clean downs aren’t a part of that strategy.

I’d love to know you’re take on the final guidelines. My email address in the link below.

KKR people move: Karr Narula has announced via LinkedIn he’s leaving KKR’s in-house portfolio operations team, KKR Capstone, after 13 years as North America head. Narula’s initial plans for travel and R&R were upended by the covid-19 crisis. “I’m instead now planning to assist a handful of healthcare companies and non-profits through these unprecedented covid circumstances,” he writes.

Email prepared by Graham Bippart and Connor Hussey