Fund investments
Close interaction enhances awareness about responsible investment
The private equity funds in FII's portfolio are managed by external management companies. The funds have a number of other investors. When making an investment decision to a fund, FII takes a stance on the management company's approach to responsible investment and corporate responsibility issues. In addition to responsible investment, FII also examines responsibility issues in the management company's own corporate activities. FII specifies its responsible investment principles in contract documentation.
FII keeps in regular contact with the funds in its portfolio, maintaining a dialogue with them about responsible investment. Active liaising produces a good understanding of the level of responsibility in the fund's operations, and an overview of possibly challenging investments in a fund’s portfolio. It also allows support to be given in any areas found to need development. Such dialogue ensures that a management company is aware of FII's responsible investment policy and endeavours to follow it. Development of a management company's corporate responsibility and of its responsible investment policies is monitored during the fund’s term of operation, and active dialogue enhances both parties’ knowledge.
Active liaising
In 2013, FII maintained a dialogue about responsible investing with management companies. This continuous interaction encourages companies to follow the principles of responsible investment in their practical activities.
A survey conducted by FII in 2013 confirmed that both awareness and development of responsible investment were at a good level in the management companies, most of which have publicly declared principles and practices regarding responsible investment and corporate responsibility. FII does not at this stage require funds to report their corporate responsibility status. The question of what type of reporting is needed will be addressed over the next few years.
Corporate responsibility practices and prospects in management companies (17 respondents)
Case: Intera Partners
Intera is a Finnish private equity firm that focuses on Finnish and Scandinavian mid-sized companies with net sales of €10-100 million. Typical investment situations for Intera are management buy-outs and buy-ins (MBO/MBIs), ownership restructurings in family-owned companies, industry consolidations and restructurings, and privatisations. FII invested in the Intera Fund I fund in 2007.
As a long-term investor, Intera’s goal is to invest in SMEs and actively develop portfolio companies to maximise their added value. A long investment horizon means that added value is based on sustainable value creation in the portfolio companies, and this is contingent on responsible operation. Intera has formulated a responsibility vision and a responsible operating model to promote responsibility in its investment operations. As a majority shareholder, Intera has good opportunities for encouraging responsibility in its portfolio companies. For Intera, it is important that the core processes of a company are on a sustainable and responsible base, because that also provides a springboard for a sustainable competitive edge.
Case: Sentica Partners
Sentica is an independent private equity company focusing on Finnish small and mid-sized companies. Sentica Partners manages four funds, amounting in total to €300 million. At present Sentica is a majority shareholder in 15 Finnish companies operating in diverse sectors. The company focuses particularly on IT services, consumer products and the manufacturing industry. FII invested in the Sentica Buyout IV fund in 2013.
Sentica Partners gives responsibility high priority. Responsibility is a definite competitive advantage in international markets and it is already transparently obvious that responsible companies perform better. One of Sentica’s portfolio companies is Kotipizza, in which it acquired a controlling share at the end of 2011. Under Sentica’s ownership Kotipizza has put into place a comprehensive responsibility programme, one element of which is transparency in the raw material chain. Kotipizza’s raw materials are produced sustainably and purchased directly from producers.
