Purpose, responsibility and transparency have been on the private equity agenda for years, but the trend is accelerating during the COVID-19 pandemic, according to Anna Grotberg, associate partner at EY-Parthenon.
"We've had increasing demand from [limited partners] in terms of transparency and accountability, particularly around [environmental, social and governance] and ESG policies," she told delegates at the virtual British Pvt. Equity and Venture Capital Association Ltd. Summit on Oct.7.
Regulatory scrutiny and developments globally have also forced the industry to become more transparent and to think more about public scrutiny, she said.
"And on top of that, we've had movements like Occupy Wall Street and continued pressure on inclusive capitalism and we've seen private equity come into the limelight from a regulatory perspective and really force the topic of transparency and purpose. Purpose and responsibility and reaction is something that we are hearing more and more," she said.
Reflecting on her own recent discussions with private equity funds about the pandemic, Grotberg said: "The topic of the conversation was broadly about the people — the people within those portfolio companies, the jobs that private equity was helping to secure through the pandemic, the kind of essentiality of a lot of the services that private equity-backed portfolio companies are giving to society."
The focus was on the kind of purpose and responsibility that many of the portfolio companies private equity owns were really bringing to the table in a moment of huge crisis, she said.
"So my personal opinion, based on the conversations over the past few months, is that this real sense of purpose and responsibility that has been on the agenda is being accelerated right now," she said.
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With four of the 10 largest employers in the world being private equity and their portfolio companies, Grotberg believes that the sector is in a unique position to become an engine of growth.
"That's a huge amount of influence, in both economic and societal, that private equity and private equity companies have,” Grotberg said.
In terms of impact investing, Grotberg noted that there are now over 700 private equity funds that are signatories to the Principles of Responsible Investing, a U.N.-backed organization that works to promote ESG factors into investment decision-making.
Private equity, venture capital and the UK
In the U.K., which is facing challenges from the pandemic and Brexit, private equity and venture capital players should embrace an even greater sense of openness and responsibility, Baroness Jeannie Drake, British trade unionist and Labour Life peer, said during the Summit.
"The global evidence shows that access to private capital is becoming more important, and it will have an important role in rebuilding Britain and it will be important that we get the right incentives to secure the availability of that capital in the U.K. It already employs a million people and it has an important role out there," she said.
Firms must embrace a greater sense of openness and responsibility, be more accountable in terms of what their contribution is to the economy and to the wider society, and how they demonstrate that. They may also need to have some "difficult discussions" with the government, she added.
Echoing this sentiment, Silverfleet Capital Partners Chairman Neil MacDougall said the sector needs to do more to spread awareness: "We can't just say that we do a great job for our investors. We have to be able to explain to other stakeholders and society in its broader sense what we do, why we do it and why it's good for the country. That's the challenge. To be aware that there is a real pressing need and that is something that we need to address."
Where to next?
The trend of creating purpose in private equity investment plans looks set to accelerate further as Grotberg points out, "evidence does suggest that a greater focus on elements of purpose and responsibility in terms of how private equity creates value within their portfolio companies does lead to superior returns."
There is a greater sense that the purpose behind creating value is something that can differentiate and that can really accelerate the growth trajectory as well, Grotberg said.