LPs’ local impact and development strategies meet some hurdles

Two institutions are reporting reputational and reliability risks associated with their allocations to local impact and development – a sign of the increasing demand for rigour and authenticity in impact-related strategies.

The Alaska Permanent Fund is winding down its in-state private equity programme due to reputational risk and governance concerns following a board vote last week, reports affiliate publication Buyouts. Across the pond, the Greater Manchester Pension Fund in the UK reported “concern[s] that we are unable to measure the impact” of its local/impact allocation and “that we do not publicise our activities effectively” in documents accompanying a board meeting last week.

Greater Manchester’s local/impact programme, launched in 2014, invests across private asset classes businesses and properties in the Northwest England region to promote social impact and climate change mitigation. It had deployed £293 million ($363 million; €332 million) by year-end 2021 and expects to have deployed £448 million by 2025.

The impact measurement challenges “affect our ability to deploy capital in the most efficient way from an impact perspective”, the document states. Meanwhile, the programme’s lack of publicity means “stakeholders may be unaware of the potential positive impact the Fund can provide and restricting our opportunity set”.

The £27.7 billion fund has hired UK impact consultant The Good Economy “to review and prepare a report on the impact achievements of GMPVF (the fund’s local property development portfolio) and the impact portfolio”, the fund document states.

Alaska Permanent Fund established its in-state investment programme in 2018 to help spur private equity and venture capital investment in Alaskan opportunities and boost the local economy. It has committed $100 million each to fund managers Barings and McKinley Capital to invest in Alaska either directly or with other funds and managers.

Reputational risks prompted the investment board last week to vote to cease investments via the programme, following recent local criticism of particular investments. A Barings co-investment in an Alaskan grocery chain drew local criticism, with some pundits claiming Alaska Permanent Fund made a “secret” investment into the business. “The problems that have arisen already are inevitable. But [the criticisms] are just mild compared to what we could get,” board member Steve Rieger said at the meeting. “What happens if one of the managers decides to lay off 10 percent of its staff from one of their investments? Can you imagine the headlines and pressure on us to step in and prevent that from happening?”

Board president Ethan Schutt said Alaska Permanent Fund could face further reputational risk as residents could question why some businesses gain investment dollars and others don’t – an especially acute problem considering Alaska’s small population. This could lead to people sceptical of the board’s intentions and harm its reputation, according to Schutt.

Moreover, 60 percent of the investments made by McKinley Capital, based in the state, had a “tenuous” connection to Alaska, chief investment officer Marcus Frampton said.