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Unnoticed Opportunites for Private Equity

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Tanja Van der Knoop, Director - Sustainable Private Equity - Netherlands.

Tanja Van der Knoop, Director - Sustainable Private Equity - Netherlands.

Published in: Economy & Finance, Business

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  • 1. Unnoticed Opportunities for Private Equity Tanja van der Knoop TBLI Asia, Bangkok, May 25th, 2007
  • 2. Content
    • Introduction
      • Developments in sustainability
      • Influence from Financial Sector
      • Link with Private Equity
    • PE key activities and Sustainability
      • Fund raising
      • Sector choices
      • New investments
      • Portfolio under management
      • Divestments
      • Divestments by write offs
    Conclusions
  • 3. Content
    • Introduction
    • PE key activities and Sustainability
      • Fund raising
      • Sector choices
      • New investments
      • Portfolio under management
      • Divestments
      • Divestments by write offs
    Conclusions
    • Introduction
      • Developments in sustainability
      • Influence from Financial Sector
      • Link with Private Equity
  • 4. Developments in Sustainability
      • Increasing expectations/pressure from stakeholders
      • Sustainability has outgrown being an issue of ideologists alone, developing from niche / window dressing, into mainstream, driven by economic motives
      • Sustainability issues have become more associated with financial performance and good corporate governance
      • The Financial Sector is getting involved rapidly. They are integrating sustainability beyond risk management in their own processes as well as in requirements for 3 rd parties
  • 5. Financial Sector developments – unknown in PE Equator Principles Dow Jones Sustainability Index FTSE4Good Index Principles for Responsible Investment (UNEP) (EU, UN,OECD) International legislation International Institutions Financial Sector
    • ABN Amro Asset Management:
      • “ Companies that are well prepared will gain a competitive advantage.
      • The investors that are well informed will benefit.”
  • 6. Pressure from the financial sector is growing … Example ABNAMRO ABN AMRO’s wake up call: 1998 Friends of the Earth/Milieudefensie campaign against ABN AMRO’s involvement in Freeport
  • 7. Sustainability is mainstreaming Example ABN-AMRO “ AA is committed to continuously improve the integration of sustainable development (SD) into its business processes.” Managing Board, December 2003 Value Creation Loss Avoidance Value Destruction Freeport APP Dialog with FOE Forestry dialog Mining policy O&G policy Equator Principles SD business strategy Wake up call Proactive Dialogue Policies Business Case Level playing field Courtesy ABN AMRO
  • 8. The Financial Sector is getting involved rapidly Other business Projects Large corporations PE Financial sector Government NGO’s Clients Investors Sustainability criteria
  • 9. Content
    • PE key activities and Sustainability
      • Fund raising
      • Sector choices
      • New investments
      • Portfolio under management
      • Divestments
      • Divestments by write offs
    Conclusions
    • Introduction
      • Developments in sustainability
      • Influence from Financial Sector
      • Link with Private Equity
  • 10. PE key activities and Sustainability
    • New investments
      • Company risks and opportunities
      • Due diligence / sustainability issues
    • Portfolio under management
      • Assessment of opportunities and risks
    • Sector choices
      • Identification of interesting or risky industries
    PE Fund raising
    • Divestments
      • Sustainability issues influencing sales opportunities
    • Write offs
      • Social and other implications
      • Influence on fund reputation
  • 11. Some examples of investment risks seen from a sustainability perspective
      • Company investing in US company  no freedom of association
      • Dutch acquisition in US: substantial gifts to Republican party
      • European companies forcedly involved in Chinese government forced abortion practices within the plant
      • Child labour not only very common in Asia (eg. building materials), Africa but also –officially allowed- in US agriculture – direct or indirect (2nd tier) links with company
      • VC invested in sector under criticism. Initially already difficulty with co-investor. Problems with exit are due
    • Examples in textile production :
      • Chemicals used in crop growing  health/safety issues as well as environmental issues
      • Bonded labour, child labour, freedom of association, general working conditions
      • Fair trade issues
  • 12. Some examples of investment opportunities seen from a sustainability perspective waiting for examples for Asian situation
  • 13. Fund raising
    • Risks
      • Large investors (e.g. pension funds) are increasingly scrutinising investments
      • Bad reputation will affect fund raising possibilities
    • Opportunities
      • Sustainability Fund of funds is increasing (number and available capital)
      • Several market “niches” still undiscovered
    New investments Portfolio under management Sector choices PE fund raising Write offs Divestments
  • 14.
        • Pension funds that neglect sustainable investing, are acting outside their task: investing the pensions of their participants as safely as possible.
          • This is the conclusion of the international lawyers office Freshfields Bruckhaus Deringer. Freshfields was asked for advice by an international group of 38 pension funds and asset managers.
            • June 2006
  • 15. Sector Choices
    • Risks
      • Overlooking
        • risky industry sectors
        • interesting industry sectors
        • too much focus (and too little added value) on the “known” sustainability sectors: renewable energy, clean tech etc. Parallels with IT 1990’s
    • Opportunities
      • Base-of-pyramid investment opportunities in low income economies
      • Growing demand for sustainable products & services (macro-trend)
    New investments Portfolio under management Sector choices PE fund raising Sustainability will play an increasing role in successful investing in new sectors Write offs Divestments
  • 16. New investments
    • Risks
      • Overlooking company (sustainability related) risks/opportunities
    • Opportunities
      • Identify next generation shareholder value
      • Challenge to spot the “new kids on the block” (currently undervalued)
      • Understanding developments related to Sustainability (legislation, supplier requirements etc.)
    New investments Portfolio under management Sector choices PE fund raising Sustainability will play an increasing role in successful investing in new sectors /companies Write offs Divestments
  • 17. Portfolio under management
    • Risks
      • Companies often not aware of sustainability issues/no focus item (Board/PE side)
        • Non-compliance (upcoming) regulation
        • Non-compliance (upcoming) supplier requirements
        • Image problems (including for Fund)
    • Opportunities
      • First mover advantage
      • Value can be uncovered when identifying social or environmental problem
        • which could provide a differential in company / sector performance
        • that is yet to be understood (priced) by the market
        • in a way that relates to one of the company’s key business drivers
      • PE may play important role in creating awareness and could drive implementation
    New investments Portfolio under management Sector choices PE fund raising Write offs Divestments
  • 18. Divestments
    • Risks
      • Attention in reps & warranties paragraph of SPA
      • PE (sustainability performance) itself might also come in limelight in this phase – giving strongly increasing demands of financial institutions
    • Opportunities
      • Increase saleability by ensuring that the company is “Sustainability compliant” (regardless of method of exit)
    New investments Portfolio under management Sector choices PE fund raising Write offs Divestments
  • 19. Write offs
    • Risks
      • Parties involved save what can be saved, quick & not subtle decision making
      • Reputation risk for PE in case of irresponsible conduct/exit
        • ethical dilemma’s
        • social issues
        • environmental issues (industrial waste, soil contamination)
    • Opportunities
    New investments Portfolio under management Sector choices PE fund raising Write offs Divestments
  • 20. Content
    • Introduction
      • Developments in sustainability
      • Influence from Financial Sector
      • Link with Private Equity
    • PE key activities and Sustainability
      • Fund raising
      • Sector choices
      • New investments
      • Portfolio under management
      • Divestments
      • Divestments by write offs
    Conclusions
  • 21. Conclusions
      • The Financial Sector is moving to forefront of sustainability. This will shortly impact PE!
      • Until 2006 PE was relatively operating in the shadow but ...PE’s activities and methods of operation are suddenly in the midst of attention. PE’s sustainability performance will soon be scrutinized
        • environmental risk & opportunities in PE & VC investments (Yale)
      • Investments guidelines are also applicable for PE
        • Equator Principles (initiative AA, HSBC, Barclays), 2002
        • UNEP principles for responsible investment (PRI), 2006
      • All PE activities are affected
        • several activities mainly face risks … but most also entail opportunities!
      • Opportunities can only be grasped by those who understand the developments
  • 22. Contact details
    • Tanja van der Knoop
    • +31 (6) 15 05 05 20
    • www,sustainableprivateequity.eu