CVC-linked GP ties carried interest to impact goal

Malaysia-based impact firm Bintang is requiring portfolio companies in its next fund to achieve B Corp certification within two years.

Bintang Capital Partners, a Malaysia-based impact manager whose parent company is owned by a CVC Capital Partners fund, is linking the performance of its latest vehicle to carried interest.

Bintang’s second Southeast Asia fund is seeking between $100 million to $150 million, with a first close expected by mid-2024 and a final close by mid-2025, according to a document seen by affiliate title Private Equity International.

Similar to its predecessor, Fund II will seek capital from investors based in Southeast Asia, including the likes of family offices and corporates within Malaysia.

The firm is setting a baseline requirement for a certain proportion of portfolio companies in Fund II to achieve B Corp certification, Jacqueline See, head of portfolio management and investor relations, told PEI. Investees will be required to receive certification within two years of the transaction.

“Failing which, penalties will be imposed upon portfolio companies who are in breach of these conditions,” she noted.

While the exact benchmark percentages are not disclosed, Bintang will also be “penalised with a lower carry interest” if a low percentage of companies achieve B Corp certification by the end of the fund, she added. It will receive a higher percentage if it reaches an upper threshold.

The aim is to filter investees who are aligned with the fund’s goals and identify those who have a genuine commitment towards impact, according to See. This also minimises the risk of greenwashing within Bintang’s portfolio, as breaches of the impact mandate will lead to financial penalties.

“The ‘carrot and stick’ mechanism is geared towards creating stronger impact alignment for investors, and also with investees, for the second fund,” See said. “For Fund II, our intention is to put it into legal repercussions and legal agreements.”

B Corp recognition signifies that a company has high standards of verified performance on social and environmental impact and the accountability and transparency for governance and employee benefits. Bintang itself received B Corp certification in May with a score of 109.1 points – well above the 80-point minimum and 50.9 median score.

Impact-linked carried interests is one way for GPs to align impact performance to compensation; according to impact investing consultancy BlueMark’s data, only 7 percent of both public and private fund managers use this type of structure. Though a growing number of managers are putting such practice in place, some are questioning whether the criteria linked to carried interest are quantifiable or just qualifiable, affiliate title New Private Markets reported.

Walk the talk

Bintang was founded in 2018 as the private equity arm of Malaysia’s AHAM Asset Management, which is part-owned by CVC Capital Partners Asia Fund V, See said. The firm is led by founder Johan Rozali-Wathooth, deputy chief executive officer at AHAM.

Bintang currently manages about $100 million of assets across its debut fund and multiple special purpose vehicles. It held a final close for BCP Asia Fund I on $33 million in June 2022, with a focus on mid-market impact-centric ASEAN companies. Deployment of the fund only started in 2022, and, according to director and head of investments Adelene Low, it has made five investments in one year. Its portfolio includes Malaysia-based elderly care provider Care Concierge and water management company Blue Planet.

The ASEAN-focused GP was seeded by Penjana Kapital’s Dana Penjana, a fund of funds programme under Malaysia’s Ministry of Finance, with a mandate to invest in Malaysian companies. CVC is Bintang’s foreign partner for the Penjana mandate, providing support for deal origination, knowledge transfer and investment deliberation, See noted.

“We are actually also allowed to invest out [of] Malaysia but then of course, if we do invest out of Malaysia, we have to ensure that companies will eventually expand into Malaysia to create opportunities or have knowledge transfer,” said Low.

One challenge for Bintang is to seek growth opportunities within Malaysia that are also working towards ESG goals. “During our due diligence process, we actually need our portfolio companies to undergo sustainability due diligence,” said See. “In that particular process, we’ll probably have a rough idea on where do they stand out of that B Corp score – are they nearer to an 80? Are they very far off like 40?”

For Bintang’s investees, scoring well below the passing score for B Corp is not a dealbreaker, as long as entrepreneurs and their companies are keen to work towards getting the certification within the time period stated in the deal terms.

Most small and medium enterprises in Malaysia are family-owned businesses, which can require more time and effort to educate and motivate to sign up for B Corp certification process. Bintang places permanent staff in portfolio companies to assist businesses on record keeping and filing for the certification.

To convince less ESG-minded companies, See said an emphasis on business sustainability is an easy way to help them make sense of ESG incorporation. “There are a lot of companies – for example, glove manufacturers – where because they mistreat their employees, they use forced labour [and] end up getting blacklisted,” she said. “You save that little bit of cost on your employees, but you’re actually at the expense of your revenue in the long run.”

According to See, younger generation founders tend to have more awareness and are more likely to be aligned with Bintang’s ESG goals, while older founders might approach ESG as a compliance exercise only.

“Once the business is more or less stabilised and got onto the growth stage, [younger founders] also want to actually do something,” she said. “It’s actually quite refreshing for a lot of these business owners when we actually pitch to them and they would realise that it is something they’ve always wanted to do.”

– This article was updated to reflect that Bintang’s AUM includes multiple special purpose vehicles and that its second fund has not formally launched.