Sharing the upside
KKR’s co-head of Americas private equity Pete Stavros is on the up. His team’s habit of giving all portfolio company employees an ownership stake in the business they work for has inspired the likes of publicly listed Harley Davison to follow suit. Other private markets firms – as we reveal in this deep dive – will probably do so, too. The highlights:

  • The industrials team has now given equity to all portfolio company employees on eight investments: Most recently Ingersoll Rand, in which the value of the equity awarded to the c.16,000 employees is worth around $400 million, says Stavros.
  • Apart from being “the right thing to do”, Stavros reports “higher retention, lower absenteeism and higher levels of employee engagement”, and “at the company level, we are seeing higher levels of productivity, higher quality, lower scrap rates, etc”. KKR is “comfortable betting” that these two trends are connected.
  • Broad ownership requires management teams to adapt: “You have almost to turn towards open-book management, where you open up the business plan to your entire workforce.”
  • KKR is not the only firm with a programmatic approach to sharing upside with portfolio company employees. Ardian puts in place employee profit-sharing schemes for some of its private equity and infrastructure assets, but has declined to discuss the details with New Private Markets. Partners Group says it is piloting something in this space.
  • The conclusion: this approach could be the antidote to the criticism that often gets levelled at financial sponsors when deals go sour.

In case you missed it, you can listen in on the highlights of my conversation with Stavros in this podcast.

The US vs rest-of-world ESG divide lives on
Only 3 percent of North American managers achieved “green” overall ESG implementation ratings in Aberdeen Standard Investments’ 2020 private equity managers’ survey. This compares with 59 percent of European managers. Like other fund investors, ASI surveys and ranks its general partners – in this case with a red, amber or green rating – relative to the peer group on ESG integration and approach.

The $251.7 billion AUM firm found 88 percent of European managers, 25 percent of Asian managers and 3 percent of North American managers were PRI, UN Global Compact or TCFD members.

ASI also found 58 percent of European managers, 8 percent of Asian managers and 6 percent of North American managers had clear climate risk assessment processes.

Read more here.

Deliveroo: ESG risk laid bare

Deliveroo’s less-than-stellar listing last week is a lesson in social issues. Aviva Investors, Aberdeen Standard Investments and M&G shunned the IPO partly because its employment practices present business risks. London’s Evening Standard newspaper wraps up the institutional comments here, including BMO Global saying that its employment practices were a “ticking” bomb that made the company “uninvestable”.

  • Deliveroo debuted on the London Stock Exchange at 390 pence ($0.54; €0.46) per share; at the time of writing the share price is down to 283 pence, giving it a market cap of £5.22 billion.
  • At the heart of this is that Deliveroo’s riders are not employees, but instead members of the ‘gig economy’.
  • Commented Will Chignell, chief commercial officer for the ESG ratings unit at Apex Group: “Employment rights, living wages and demonstrating a duty-of-care to key stakeholders are indispensable ESG metrics. Whether a company is public or private, these metrics are intrinsically linked to a business’ risk, profitability and valuation.”

UBS new ESG head

Banking and asset management giant UBS has hired an agri-investing  veteran to take on a dual role as head of food and agriculture and head of ESG investment strategies, the firm said on Thursday: both are new roles within the real estate and private markets group.

Darren Rabenou (LinkedIn profile here) is a former partner at Fabbri Fund Management, a California-based farm operator and investment group. In the firm’s words, he’ll oversee UBS asset management’s $2 billion farmland strategy as well as “REPM’s sustainable private investments, leveraging the firm’s significant expertise to expand the business’s direct ESG capabilities, and manage the development of products with a sustainable overlay to help meet clients’ evolving needs”.

We’ll be catching up with Rabenou shortly to bring some more insight into the strategies.