Beginning in 2012, in anticipation of becoming a signatory to the UN PRI, the Private Advisors (the "Firm") Primaries Private Equity team implemented an investment policy to educate its underlying private equity fund managers on the importance of ESG considerations as part of their due diligence processes and firm management, and requests formal acknowledgement through investment side letters. In 2014, the Firm became a signatory to the United Nations' Principles for Responsible Investment ("UNPRI"). In 2015, the Firm formalized the implementation of its ESG approach as part of its Primary Investment Process by:
- Forming an ESG Committee that reports directly to the President, which includes members from our Private Equity, Hedge Fund, Operational Due Diligence and Compliance teams.
- Creating an ESG Due Diligence Manual and Scorecard for its primary private equity fund investment activities, the findings of which are included in final investment memos and in the annual meeting review
- Including ESG considerations in Operational Due Diligence ("ODD") monitoring
Private Advisors addresses ESG factors in several ways during the underlying primary private equity manager selection and monitoring processes. The initial step is to inquire whether or not the underlying manager is a signatory to a recognized ESG standard. If the manager is not a signatory, Private Advisors requests, through a side letter, that the underlying manager recognize the importance of ESG considerations when making and managing an investment.
Private Advisors has developed and utilizes a proprietary ESG Scorecard for primary fund investments to identify risks, a practice consistent with the Firm's focus on mistake avoidance, as well as to identify value drivers, which is consistent with the Fund's focus on business building. Private Advisors, as mentioned above, implemented an ESG Scorecard as part of its investment due diligence in 2015, which is shared with all members of the Primaries Investment Team.
In 2018, the Hedge Fund team introduced a screened long/short hedge fund of funds, based on a clients' specific social concerns. In additon, while the Hedge Fund team is in the development phase of the full application of ESG, it created and has utlized the ODD team as part of its manager selection, appointment and monitoring process since 2009, as detailed below.
In addition, a dedicated four person Operational Due Diligence ("ODD") team separately underwrites the governance, control environment and risk management of prospective underlying primary private equity and hedge fund managers. Private Advisors' operational due diligence process is conducted by the Firm's dedicated operational due diligence professionals as well as third party firms that conduct background checks and service provider verifications, utilizing an extensive Operational Due Diligence Checklist. This includes a review of the operations, accounting and business management, as needed, to understand and assess the fund manager's operational infrastructure and control environment. Private Advisors also uses independent service providers (BackTrack and/or Financial Risk Mitigation) to conduct key individual and entity level background checks for underlying fund managers that include, but are not limited to, critical investment professionals (often tied to the Key Person provision in the legal documents), principals and Chief Financial / Chief Operating Officers.
The Operational Due Diligence has an investment veto if it finds insufficient governance, internal controls and/or other operational issues. The findings from the ESG Scorecard and ODD team are also summarized in the final primary fund investment memo, which is reviewed by the Private Equity Investment Committee as part of the investment decision process.
The Private Equity Investment Committee functions in accordance with Private Advisors' Investment Policy and Procedures guidelines, including a right of veto by the ODD Team. Voting procedure and scope of the Investment Committee's role is governed by Private Advisors' Investment Committee Charter and Operating Agreement.
The Hedge Fund nvestment Committee functions in accordance with Private Advisors' Investment Policy and Procedures guidelines, including a right of veto by the ODD Team. Voting procedure and scope of the Investment Committee's role is governed by Private Advisors' Investment Committee Charter and Operating Agreement.