Ardian’s three-tier approach to sharing the wealth
Sharing the gains of private capital investment with portfolio company employees is at the leading edge of sustainability. We’ve explored KKR’s travails in this space extensively and heard how Partners Group is piloting programmes to re-invest gains into “the professional, personal and financial growth” of portfolio company employees.
This week I caught up with Ardian’s Philippe Poletti, who chairs the French firm’s sustainability committee, is CEO of Ardian France and head of the firm’s buyout strategy. We discussed Ardian’s approach to sharing financial upside.
The firm was an early adopter. It made its first distribution to portfolio company employees in 2008 when it sold Photonis, an advanced manufacturer of components that end up in – among other things – night-vision goggles.
Ardian has since rolled out this exit bonus programme to 68 percent of the companies in its buyout, mid-market and infrastructure portfolios, according to the firm’s website. It works like this: in the event that Ardian’s sale of the asset generates a return in excess of a certain money multiple, a share of the proceeds is divided equally among all that company’s employees. The multiple itself is confidential, says Poletti, and it varies depending on the fund. When these events happen, each employee gets the same payout, which tends to be equivalent to between one to six months’ salary.
This payout-at-exit system is level 1. “The second layer” is profit-sharing during ownership. In 2019, between the buyout and expansion portfolios, between 4 and 5 percent of total portfolio company EBITDA was distributed to employees, says Poletti.
The third layer is employee shareholding, which is implemented through whichever scheme is most appropriate for the portfolio company’s home country. In France there is the Actionnariat Salarié, in Germany the Mitarbeiterkapitalbeteiligungsgesetz and in the UK, the save-as-you-earn and the Enterprise Management Incentive schemes.
The firm aims to have all three “layers” of financial inclusion applied at a target of 80 percent of the private equity and infrastructure assets in which it has a majority shareholding, but Poletti declines to put a timeframe on this goal. Progress so far? Poletti declines to be specific, other than reporting that the buyout and expansion portfolios – which started this first – are “pretty well advanced”.
“Maybe it is because of our French origin; profit sharing was the first sustainability initiative we introduced at Ardian,” says Poletti. “We started with social on the ESG agenda; that was the first element we pushed.”
Whatever happened to Photonis? Ardian reinvested in the business in 2011 and in February this year sold it for a second time.
Ham Lane’s raised expectations
Consultant and manager Hamilton Lane has upped its own ante on impact. The press release announcing the launch of its second impact fund doesn’t mention a target, but we hear it plans to raise up to $400 million. That would make Hamilton Lane Impact Fund II more than three times larger than its predecessor, which closed on $95 million last June and is almost fully deployed across 16 investments, according to the firm. Hamilton Lane’s strategy for Fund II will mostly remain the same, targeting investments in sectors including health and wellness, energy and environment, community development and social empowerment. Three things to know:
- Going direct: Most Fund II deals will be direct investments in private companies alongside GPs with aligned interests
- Risk: Up to 10 percent of Fund II’s capital is reserved for opportunistic plays
- Measurables: Hamilton Lane will identify metrics “on an investment-by-investment basis” when deals close and “report back to our LPs on a regular basis (annually)”.
Diversity: PE progress report
The Institutional Limited Partners Association is out with its first quarterly report, following the launch of its Diversity in Action initiative in December. From 46 founding signatories then, which include Blackstone, The Carlyle Group and Teacher Retirement System of Texas, that number had nearly tripled to 133 in March. Here are some findings from the first report, which focuses on how signatories approach DEI metrics and data capture:
- 81 percent of DIA signatories have assigned senior-level responsibility through cross-functional committees or task forces, which include c-suite professionals, deal professionals and human capital staff. These tend to range from between three to eight people or more, and in some cases meeting weekly or bi-weekly, Jennifer Choi, managing director for industry affairs at ILPA, told affiliate title Private Equity International.
- Fewer than 30 percent of signatories have public statements on the importance of DEI to their organisations available through their websites or elsewhere.
- One of the least-adopted actions within the DIA framework is around incorporating DEI into employee performance reviews. The reason, according to Choi, is that it’s “hard to do”. “How much accountability an employee can individually have for DEI will really vary depending on where you sit in the organisation, how much influence you have over those key decisions, and also the nature of your organisation itself,” Choi said.
- LPs are very much still in the process of trying to get to a holistic and aggregate assessment of diversity of the portfolio, while GPs – who have been collecting data on their own teams for a bit longer – are now ready to make that transition into creating a more inclusive culture.
What’s next? A working group of DIA signatories will propose revisions to the ILPA D&I Team Metrics Template as well as data collection best practices, to be included as part of a larger exercise to enhance the ILPA DDQ. Enhancements could include a non-binary/not disclosed option on gender, LGBTQ, veteran status, disability and age. ILPA will seek feedback on the enhanced DDQ during a public consultation period in summer 2021.
Verdane, a European growth investor and secondaries player, has hired an operating partner with sustainability credentials. Erik Osmundsen joins the firm having spent nine years as CEO of a Nordic waste management business which he transformed into “Norway’s 11th most reputable company based on a number one position on environment, according to the market research company Ipsos”, says Verdane. The transformation of Norsk Gjenvinning is taught as a case study in Harvard Business School’s “Reimagining Capitalism” class.
Lisa Hall, chair of Apollo Global Management’s impact business, puts forth the rationale for a mega-manager like Apollo being a suitable agent for positive change in our Build Back Better series. Apollo is going after an area that has hitherto been considered beyond impact: large, mature companies. These organisations, with their entrenched, change-resistant operations are – in Apollo’s eyes – “an expansive and underpenetrated new frontier”. Read the full piece here, and please send any thoughts or feedback to email@example.com.
The SEC risk alert in a nutshell
The two key takeaways from the recent SEC ESG risk alert, according to lawyers at Kirkland & Ellis and Akin Gump? Do what you say you’ll do; managers have to provide full and clear disclosure about their ESG practices.
And if they don’t? Enforcement actions are a likely consequence if a manager doesn’t follow through on ESG claims. Read more here.