Q&A: PRI's Fiona Reynolds

Q: What led to PRI's focus on private equity?

A: Most signatories signed up for PRI when we were first established in 2006. They start looking at responsible investment within the listed equities space because that's a bit easier - they can vote their shares and they engage with companies. But as responsible investment has evolved they don't want their activities to be limited to one asset class. Part of PRI's work has been to take responsible investment to every asset class and private equity is a large part of many of our signatories' alternative investment streams. I really think that responsible investment and private equity sit extremely well together. Many investors are going into companies and improving them, asking how they can make money out of good, sustainable companies, and that is what responsible investment is all about.

Q: To what extent do you focus your efforts on the LPs and rely on a trickle-down effect?

I see this questionnaire as a starting point - let's see how much people find that valuable and useful and what changes are required

A: Within the PRI we have a good group of LPs and GPs - about 180 LPs and 240 GPs - but asset owners are the key to driving the responsible investment agenda. They are the ones who provide the mandate to managers and they increasingly include responsible investment requirements within those mandates.

Q: Are there particular kinds of LPs - in terms of structure or geography - that are more proactive?

A: Pension funds, and it is more Europe than the US, although both are big groups. You could say not just in this area but overall, it has really been the large European asset owners that have led the way in responsible investment. Part of the reason for us coming to Asia is that these groups don't just invest in one country, but globally. We really need to get responsible investment moving in Asia.

Q: How much traction have you got with Asia-based LPs?

A: We do have some Asian LP members and we want to grow the dialogue. Sometimes we find that when we enter new countries there is a lot of misconception about what responsible investment is about. We need to make sure we are talking about very mainstream investment issues and how companies address these risks, including ESG risk. At the same time, we don't want to come in and recreate work that has already been done. We want to amplify existing work and fill gaps that need to be filled. We are really the only global body that covers the E, S and G across all the different asset classes, so we have a unique role to play.

Q: Do you find that investors prioritize one element of environment, social and governance matrix?

A: You often find that people look at the G initially, but the E is getting more and more focus. Unfortunately the S side seems to be the one that doesn't get as much attention as the others, although I do think that is starting to change as well. In private equity, if you are going into a company you will look at employee competence and turnover, safety records, and so on, so there is a focus but I sometimes think the G is the area that leads in people's minds. Maybe that is because it is more tangible to people. In addition, the actual governance side has been covered for many more decades. People feel comfortable with it because they have seen a lot of research about how better performing boards mean better performance. This attitude is common across all asset classes.

Q: PRI has been developing a responsible investment-focused due diligence questionnaire for LPs. Will this lead to more standardization in GP-LP exchanges on ESG?

A: I think the whole idea of standardized reporting is important. Managers often end up doing so many different reports, so having some kind of template is more efficient and helps make sure that information is read and acted upon. We do a lot of work developing best practice because often people want to know what they should be looking at, so this is another example of us trying to ensure that asset owners have the tools they need. I see this questionnaire as a starting point - let's see how much people find that valuable and useful and what changes are required. We always do these things in a very consultative way to try and get the best outcome.

Q: Based on what you have seen in other asset classes, will LP engagement on ESG inevitably deepen?

A: It keeps evolving and people are getting to a deeper level all the time. LPs start with the basics and then they reach another level of detail and cover more and more ESG issues.

Q: Are there any other areas within private equity in which you are particularly interested?

A: We are interested in private equity fees and transparency and transparency around fees - a lot of LPs are focused on this. Obviously private equity fees can be more expensive than other asset classes but that is not the issue in itself - it is about net returns, not the fee you pay. The key issue is having transparency around fees. I think this is what a lot of LPs want.

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