Private equity

Since the start, the team has always invested in managers that have long-term, sustainable growth trajectories in mind for the companies. We avoid financial engineering and over-leveraging of companies and invest in managers where teams have a hands-on approach and are involved in the day-to-day management of their portfolio companies. Company turnarounds are therefore well thought through with the long-term growth of the companies in mind This might take more time than the 'quick-flip' turnarounds reported in the media. However, we strongly believe the benefits show during challenging market environments when resilient companies, with well-thought strategies and dedicated teams, are better able to steer those companies through the challenges successfully. The strategy's performance throughout the covid crisis and the 2022 inflation and energy crises shows this long-term strategy is a good fit for savvy investors.

We put emphasis on our relationships with our managers. We re-invest with successful managers, and they also put their trust in us to commit to long-term partnerships when they deliver strong results. In other words, we invest in private equity funds and managers where decency, values, and trust lead to companies that perform well time and time again. As the managers we invest in are often the sole or majority owner, they are directly responsible for the strategic decisions made by the companies. Being the owner that transitions companies from founder-led or fragmented, to large corporations that implement proper policies and processes is an important part of the value-creating characteristics we seek to add to the portfolio. Indirectly, we believe this especially ties to our values of good corporate citizenship and human dignity.

When it comes to sustainability, the available data to show measurable impact in our investment universe is still in its infancy. However, the data is improving enough to be able to decipher promising funds from the less promising ones, so we look forward to continuing our search in 2023.

A major part of our strategy is to invest in managers that back relatively young companies. Often still founder operated, or locally successful and looking for international expansion. Our investments come in at the moment of maturity. The transformation very often includes developing processes, changing leadership and bringing the company up to the latest standards that are demanded by not only customers but also future buyers of the companies. Investing in managers and funds consisting of young and less mature companies also means there is often a gap in RI data availability. It could also mean a company is not performing well in terms of RI at the moment we enter, but will be transformed during our ownership. We like the ability to achieve an improvement rather than only acquiring companies that are already best in class at acquisition.

In 2022, we made steps to future proof the strategy by focusing on five new long-term sustainable themes moving forward: energy transition, education, health, technology and mobility. In practice, this means we commit to funds and managers that share our belief that these macro trends will drive future growth. In 2022, we committed to funds like Ambienta which classifies as Article 9 under SFDR, Synova and Mentha.

Ambienta is an investor targeting companies that provide services or products that utilise resources more efficiently.

Synova has a strong tilt towards healthcare and education, with previous investments including Charnwood Molecular, which specialises in drug discovery. Another example is AllClear Insurance, which specialises in travel insurance for people with pre-existing medical conditions – an underserved community.

Mentha is a Dutch private equity firm that acquires companies that focus on human rights and sustainability issues. Examples of their investments include Paradigma, a group of companies that focuses on sustainable employability by providing health and safety works in addition to psychological interventions, vitality scans and reintegration services. Another example is HB, which provides packaging services for the food industry where they focus on smart solutions to reduce costs, kilometres, energy and errors.

Given our strategy focuses on the lower to mid-market, we expected the data challenges mentioned earlier to reflect the ESG and IMP scores. That said, we sought to assess all funds in our portfolio in 2022 and were pleasantly surprised by the results. On many aspects, the managers perform decently. Where managers are lagging behind, it is typically due to the aforementioned challenges, or the lack of data and staffing to be able to score on certain aspects.

When we assess the ESG scores from 2021 to 2022, we observe that leaders increased from 3.8% to 11.9%, that professionals increased from 26.9% to 54.6%, that laggards slightly increased from 5.6% to 6.8%, and that those funds we weren’t able to score last year drastically decreased from 39.5% to 4.3%.

For the IMP scores from 2021 to 2022, we see that those funds that may or do cause harm decreased from 48.1% to 36%, those funds that act to avoid harm increased from 37.9% to 57.3%, those funds that benefit stakeholders increased from none to 3.9%, and those that contribute to solutions stayed roughly the same from 0.9% to 1.1%.