Private equity vehicle worth £626 million to fund solutions for “society and the planet”.
Brunel Pension Partnership (BPP) and investment manager Neuberger Berman (NB) have sought “sector and investment style diversification” while also prioritising impact, partnering for a third time on a bespoke private equity fund.
BPP, based in the west of England, has selected previous collaborator Neuberger Berman to manage its third cycle private equity portfolio, the NB Clifton Private Equity III, a bespoke impact investment vehicle with £626 million (US$759 million) of capital.
The strategy will commit 40% of the fund to solutions that contribute to society and the planet, while the remaining 60% will be invested according to BPP’s responsible investment policy.
BPP said that the 40% impact target is in line with the two firms’ “shared agenda” of immediate investment in the new “post-transition economy”.
Jaime Alvarez, Private Equity Portfolio Manager at Brunel, told ESG Investor that the vehicle is “closer to a joint venture” between the two organisations rather than “a traditional multi-LP (limited partner) fund of funds”.
“We are looking for sector and investment style diversification,” he added. “Although our responsible investment and ESG requirements will produce certain negative and positive biases, we expect to deliver overperformance in the long-term.”
BPP is one of eight Local Government Pension Scheme (LGPS) pools in the UK. It has ten partner funds – Avon, Buckinghamshire, Cornwall, Devon, Dorset, the Environment Agency, Gloucestershire, Oxfordshire, Somerset and Wiltshire – collectively representing £38 billion in AUM.
BPP and Neuberger Berman first partnered in 2019 when the pension pool made a cornerstone commitment of US$60 million to the Neuberger Berman Private Equity Impact Fund on behalf of four LGPS clients, as well as an anchor commitment to NB Private Equity’s flagship co-investment fund.
In 2021, BPP awarded Neuberger Berman £1.3 billion of its £2.1 billion climate transition-linked multi-asset credit mandate and committed £175m to NB Private Debt IV, a senior direct lending fund.
The expansion of their relationship will enable BPP to implement its third private equity portfolio. Neuberger Berman will help the pension pool commit the majority of the capital to third-party primary funds.
Alvarez characterised the fund as a co-investment and secondaries diversified strategy led by Neuberger Berman’s internal investment team that includes LP- and GP-led (general partner) transactions, with various market caps and a “preference for the mid-market”.
He said that private equity has “always appealed” to its clients as a “diversifying asset class with attractive risk-return characteristics”. Private markets also offer an “opportunity to fulfil our clients’ responsible investment ambitions”, Alvarez added.
Ed Jones, Head of UK Institutional Client Business at Neuberger Berman, said that private markets offer institutional investors an “all-important source of diversification” and opportunities for long-term value creation that are “critical for delivering on LGPS investment objectives”.
Increased impact appetite
Alvarez underscored that BPP has increased its allocation to the “rapidly growing” impact investing asset sub-class.
BPP said that its impact investments must meet a range of “social and climate priorities” and stressed that Neuberger Berman’s “strong credentials” in ESG integration and impact investing across private markets.
Last week Kieron Boyle, CEO at independent non-profit Impact Investing Institute, told ESG Investor that “investors understand how impact investing can drive both returns and mitigate risk”.
He noted that investors have increasingly demanded clarity and transparency, as well as underscoring the importance of “intentionality” in impact funds.
According to the Impact Investing Global Market Report 2023, the market grew from US$420.9 billion in 2022 to US$495.8 billion in 2023, with a compound annual growth rate of 17.8% to US$956 billion in 2027.
Last year, the Global Impact Investing Network (GIIN) estimated that the market was as large as US$1.2 trillion, marking the first time it had surpassed the trillion-dollar mark.
The Impact Investing Institute has created the Just Transition Criteria, a practical tool and framework that can be used by asset owners and managers to align investments with a just transition.
The Institute is currently in a piloting stage where significant effort has been devoted to establishing criteria on a global scale. The pilot includes the Just Climate venture fund, founded by former US Vice-President Al Gore’s Generation Investment Management. The fund, launched earlier this year, has raised US$1.5 billion to invest in climate solutions in hard-to-abate sectors like shipping and industrials.