The Sustainable Finance Disclosures Regulation (the “SFDR”) requires that a product which promotes, among other characteristics, environmental or social characteristics or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices, should publish and maintain on its website certain information as set out in the SFDR and its supporting regulatory technical standards.
This disclosure is made in respect of PE Integrum II Offshore Feeder Fund, L.P., a Cayman Islands exempted limited partnership (the “Fund”), which will invest substantially all of its assets in the limited partnership interests of Integrum Capital Partners II LP, a Delaware limited partnership (the “Master Fund”).
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR AN INVITATION TO SUBSCRIBE TO INTERESTS OF THE FUND OR ANY OTHER ALTERNATIVE INVESTMENT VEHICLE MANAGED BY THE INVESTMENT ADVISOR (AS DEFINED BELOW), AND THE INFORMATION PRESENTED IN THIS DOCUMENT SHOULD NOT BE RELIED UPON BECAUSE IT IS INCOMPLETE AND MAY BE SUBJECT TO CHANGE.
In case of any inconsistency between this disclosure and the pre-contractual disclosure document appended to the confidential private placement memorandum of the Fund as amended and supplemented from time to time (the “Memorandum”), the Memorandum shall prevail. Defined terms not otherwise defined have the meaning given to them in the Memorandum.
1. Summary
SUMMARY
The Fund has been established to act as a feeder fund that will invest substantially all of its assets in the Master Fund. The Master Fund intends to promote certain social characteristics through pre-investment due diligence to identify minimum standards of business conduct with respect to portfolio companies’ governance programmes, diversity, and positive employee relations. The Master Fund will implement its fund manager’s (its “Fund Manager’s”) thematic approach to investing by seeking to invest in high quality businesses in the United States services sectors and partnering closely with management teams to accelerate organic growth through investments in talent, technology, strategic market expansion, and other forms of innovation.
The Master Fund will seek to invest in four primary sectors: (1) insurance services, (2) business and professional services, (3) payments, and (4) capital-light financial services, with a focus on organic growth-driven value creation strategies. The Fund Manager will assess relevant governance factors during pre-investment due diligence, which will include a review of prospective portfolio companies’ management oversight, legal compliance, and anti-bribery and corruption policies.
The Master Fund is committed to invest a minimum proportion of 90% in investments that qualify as aligned with the environmental and/or social characteristics promoted by the Master Fund. An investment will be counted as “#1 Aligned with E/S characteristics” where, on a pre-investment basis, the Fund Manager assesses the company as meeting its minimum standards of business conduct with respect to the company’s governance programme, diversity, and positive employee relations, or otherwise where the deal team considers that there is a clear and achievable path to meet the Fund Manager’s standards through engagement with the portfolio company.
The Fund Manager will use the following channels to communicate ESG matters to investors: (i) ESG Diligence Assessment, (ii) Quarterly Reporting, (iii) Semi-Annual LPAC Meeting & Annual General Meeting, and (iv) Incident Reporting. Additionally, the Master Fund will use the sustainability indicators listed in section 7 below to measure the attainment of the environmental and/or social characteristics promoted by the Master Fund and will report on these indicators to investors at least annually. The Master Fund will rely on the data provided directly by investee companies through an ESG Questionnaire to provide its limited partners with an annual report including information on the Master Fund’s sustainability indicators, which will be reported on an aggregated basis.
During the pre-investment due diligence process for any given investment opportunity, the Fund Manager’s deal team will prepare an “ESG Diligence Assessment,” which has a standardized set of topics to evaluate for different sectors, with a focus on governance programmes, diversity, and employee relations. The topics included in the template are based on guidance provided by the SASB Standards. If the investment progresses, the Fund Manager’s deal team may seek to address relevant ESG-related issues in the transaction documentation. In addition, the relevant and material ESG factors that are identified during the pre-investment due diligence will establish the ESG-related areas of focus during the Master Fund’s ownership period.
The Fund Manager has determined that the Master Fund should be classified as an investment product that promotes, among other characteristics, environmental or social characteristics or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices, within the meaning of Article 8 of the SFDR.
Since the Fund’s investment object is to invest substantially all of its assets in the Master Fund, Citi Global Alternatives, LLC (the “Investment Advisor”) has determined that the Fund should also be classified as an investment product that promotes, among other characteristics, environmental or social characteristics or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices, within the meaning of Article 8 of the SFDR.
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2. No sustainable investment objective
The Fund and the Master Fund promote environmental or social characteristics, but do not have sustainable investment as their objective.
3. Environmental or social characteristics of the Fund
The Master Fund intends to promote certain social characteristics through pre-investment due diligence to identify minimum standards of business conduct with respect to portfolio companies’ governance programmes, diversity, and positive employee relations.
4. Investment Strategy
(a) Investment Strategy at the Fund's Level
In relation to the investment strategy of the Investment Advisor in the investment selection process, the Investment Advisor has implemented a Sustainability Risk Standard in order to integrate the consideration and assessment of sustainability risks within the meaning of the SFDR into its investment selection process as described below. The Investment Advisor does not select funds to be offered based solely on their ESG status, credentials, reporting or disclosure.
“Sustainability risk” is defined in Article 2 of the SFDR as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.” In relation to integrating sustainability risk into its selection process for deciding whether to establish the Fund in order to participate in the Master Fund, the Investment Advisor implemented a two-tier assessment covering both the Fund Manager and the Master Fund.
At the manager level, the relevant investment research and operational due diligence teams assess how far ESG and in particular the sustainability risk is embedded into the organisation, its governance, the day-to-day running of the Master Fund and the Fund Manager’s investment decision-making process. At the fund level, the investment research team assess the extent to which the Fund Manager has integrated sustainability risk into its investment decision-making process for the Master Fund. The manager and fund level sustainability risk assessments are then combined to produce an overall sustainability risk profile.
As part of the Investment Advisor’s selection process, the overall sustainability risk profile of the Fund Manager and the Master Fund is considered along with other factors, including the depth and breadth of experience within the investment team, a consistent and disciplined investment approach, track record, market opportunity, and other risk factors. Accordingly, sustainability risk is considered in the round on an integrated basis, along with these other factors, which collectively drive an overall assessment of the Master Fund by the Investment Advisor.
(b) Investment Strategy at the Master Fund's Level
The Master Fund will implement a thematic approach to investing by seeking to invest in high quality businesses in the United States services sectors and partnering closely with management teams to accelerate organic growth through investments in talent, technology, strategic market expansion, and other forms of innovation.
The Master Fund will seek to invest in four primary sections: (1) insurance services, (2) business and professional services, (3) payments, and (4) capital-light financial services, with a focus on organic growth-driven value creation strategies.
5. Proportion of Investment
The Master Fund is committed to invest a minimum proportion of 90% in investments that qualify as aligned with the social characteristics promoted by the Master Fund.
An investment will be counted as “#1 Aligned with E/S characteristics” where, on a pre-investment basis, the Fund Manager assesses the company as meeting its minimum standards of business conduct with respect to the company’s governance programme, diversity, and positive employee relations, or otherwise where the deal team considers that there is a clear and achievable path to meet the Fund Manager’s standards through engagement with the portfolio company.
The Master Fund is permitted to hold certain non-core assets, such as certificates of deposit, cash and cash equivalents. No minimum environmental or social safeguards are applicable to such holdings.
Derivatives will not be used to attain the environmental and/or social characteristics promoted by the Master Fund.
6. Monitoring of Environmental or Social Characteristics
The Investment Advisor will utilise the assessments, measurements and monitoring information provided by the Fund Manager regarding the impact of the investments selected for the Master Fund, the data sources and screening criteria for the underlying assets, and the relevant sustainability indicators used to measure the attainment of each of those environmental or social characteristics promoted by the Master Fund, and how the characteristics are being monitored throughout the lifecycle of the Master Fund and the related internal or external control mechanisms.
At the Master Fund level, the Fund Manager will, annually, assess the status of the E/S characteristics that the Master Fund promotes by tracking and reporting on the indicators discussed in (7) Methodologies for Environmental or Social Characteristics below. In addition, the Fund Manager will use the following channels to communicate ESG matters to investors:
• ESG Diligence Assessment: deal specific metrics and commentary are reported on to the Investment Committee during due diligence and may be shared with investors upon request.
• Quarterly Reporting: material changes (both positive and negative) in the portfolio are communicated with investors.
• Semi-Annual LPAC Meeting & Annual General Meeting: general trends and developments, material concerns and opportunities.
• Incident Reporting: should there be a material ESG incident, the Fund Manager will reach out to its investors in a timely manner to discuss the event. Investors can anticipate a brief written communication from the Fund Manager giving an overview on the situation, followed by a scheduled investor update call with the senior management team to discuss the situation in much more detail, including the forward-looking plan to remedy the ESG incident.
7. Methodologies for Environmental or Social Characteristics
The Investment Advisor will utilise the methodologies used by the Fund Manager to measure how the social or environmental characteristics promoted by the Fund and the Master Fund are met.
The Fund Manager will use the following sustainability indicators, as appropriate, to measure the attainment of the E/S characteristics promoted by the Master Fund through its investments, and will report on these indicators to investors at least annually:
% of portfolio companies with a diversity, equity and inclusion (“DEI”) policy (including a recruitment, retention and advancement programme)
% of portfolio companies with a Code of Conduct/Code of Ethics (that covers harassment, discrimination, or workplace violence)
% of portfolio companies with an Equitable Pay Policy
% of portfolio companies with a Family Leave Policy (that exceeds any government mandated minimum paid leave)
% of portfolio companies with an annual employee engagement survey
% of portfolio companies with a performance appraisal policy
% of portfolio companies with an anti-harassment and anti-discrimination policy (including anonymous and third-party reporting mechanisms)
% of portfolio companies reporting on the composition of their board members on an annual basis
% of portfolio companies with a cybersecurity incidence response policy
% of portfolio companies with an anticorruption policy
8. Data Sources and Processing
The Investment Advisor will rely on the Fund Manager's disclosure in relation to the data sources used, the measures taken to ensure data quality, the processing of data and the proportion of estimated data.
The Master Fund will rely on the data provided directly by investee companies through the ESG Questionnaire to provide investor’s with an annual report, including information on the Master Fund’s sustainability indicators, which will be reported on an aggregated basis.
The data will be assessed in-house by the Master Fund’s general partner based on, for example, engagement with management and other relevant internal due diligence processes.
9. Limitations to Methodologies and Data
The Investment Advisor will rely on the description of the Fund Manager in relation to any limitations to the methodologies and how such limitations do not affect how the environmental or social characteristics promoted by the Fund and the Master Fund are met.
Without prejudice to the risks identified in the relevant sections of the Master Fund’s PPM concerning ESG risks, the primary limitation is that the Master Fund’s general partner is reliant on self-reporting by portfolio companies. This limitation is not considered by the Fund Manager to materially limit the monitoring or attainment of the Master Fund’s promoted characteristics as self-reported data is usually provided by portfolio companies in a timely fashion.
10. Due Diligence
The Investment Advisor will rely on the description of the Fund Manager in relation to the due diligence carried out on the underlying assets of the Master Fund, including the internal and external controls on that due diligence.
As part of its investment due diligence process, the Master Fund will conduct a preliminary assessment of investment opportunities in relation to its promoted social characteristics, as well as ESG-related risks more broadly. The investment team’s process is guided by the Fund Manager’s ESG policy and by the Sustainability Accounting Standards Board (“SASB”) Standards. Through the preliminary assessment, the Master Fund will seek to screen out and avoid investments in companies with weak governance programmes, insufficient focus on diversity and negative or inadequate employee relationships which the Master Fund considers cannot be mitigated or managed during the Master Fund’s ownership.
During the pre-investment due diligence process for any given investment opportunity, the deal team will prepare an “ESG Diligence Assessment,” which has a standardized set of topics to evaluate for different sectors, with a focus on governance programmes, diversity and employee relations. The topics included in the template are based on guidance provided by the SASB Standards. For each topic included in the template, the deal team will assess the relevance to the company (low, medium, or high) based on the relevant activities for each company, make a risk assessment (low, medium, or high), and set forth any material findings and recommendations for next steps. The ESG Diligence Assessment will be completed and presented to the Fund Manager’s investment committee for all investments made by the Master Fund.
As part of the ESG Diligence Assessment, the deal team may evaluate additional topics and metrics not identified by the SASB standards. If the investment progresses, the deal team may seek to address relevant ESG-related issues in the transaction documentation. In addition, the relevant and material ESG factors that are identified during the pre-investment due diligence will establish the ESG-related areas of focus during the Master Fund’s ownership period. The Master Fund will seek to establish or maintain relatively small boards made up of active board members that are deeply engaged with each portfolio company and the respective management teams. The Fund Manager believes this approach to board engagement can help reduce bureaucracy and inefficiency and foster strong board oversight. The Master Fund will aim to be a value-added partner to the management teams of its portfolio companies. If the Master Fund identifies that a relevant ESG-related competency does not meet relevant standards, the Master Fund will actively engage with the relevant management team to provide advice, resources (including capital as needed), and third-party expertise with an emphasis on seeking alignment between the Master Fund's goals and those of the management team.
11. Engagement Policies
The Investment Advisor will rely on the description of the Fund Manager in relation to the engagement policies carried out by the Master Fund.
The relevant and material ESG factors that are identified during the pre-investment due diligence will establish the ESG-related areas of focus during the Master Fund’s ownership period. The Fund Manager will seek to establish or maintain relatively small boards made up of active board members that are deeply engaged with each portfolio company and the respective management teams. Integrum believes this approach to board engagement can help reduce bureaucracy and inefficiency and foster strong board oversight. The Fund Manager aims to be a value-added partner to the management teams of its portfolio companies. If the Fund Manager identifies that a relevant ESG-related competency does not meet relevant standards, the Fund Manager will actively engage with the relevant management team to provide advice, resources (including capital as needed and deemed necessary by the Fund Manager), and third-party expertise with an emphasis on seeking alignment between the Master Fund's goals and those of the management team.
12. Designated Reference Benchmark
No reference benchmark has been designated for the purpose of tracking the implementation of environmental or social characteristics promoted by the Fund or the Master Fund.
Lastly, as the Fund and the Master Fund are newly formed, the periodic reporting is not currently available. Once the periodic reporting has been conducted for the Fund and the Master Fund, such reporting will be made available here.
