Sweden’s Kåpan co-seeds M&G sustainable senior secured loan fund

The pension fund for Swedish government employees has committed €26m to a senior secured loan strategy launched by M&G’s private assets division.

Kåpan Pensioner is investing alongside the Prudential With-Profits Fund, which is making a larger commitment of €175m.

Maria Giertz, chief investment officer of the €11.2bn Swedish pension fund, said investing in M&G’s new fund was, put simply, “a good ESG fit”.

“We have been partnering with M&G for several years now and are pleased to be a seed investor in their sustainable loan fund due to the close alignment between us in terms of assessing the sustainability in the investments,” she said.

M&G was one of the first non-bank investors to enter the European leveraged loan market, in 1999, and manages around €9bn on behalf of institutional investors across a range of loan funds.

M&G describes its new senior secured loan fund as having an “explicit sustainability objective alongside its financial one”, pursuit of which will involve exclusion, bilateral and collective engagement, and tilting towards high-scoring companies and sustainable labelled debt instruments.

There will be enhanced, explicit reporting and monitoring, the asset manager also said.

“This strategy emphasises the active elements of private-side loan investing as we look to contribute to sustainability momentum in an asset class that is far less advanced than listed equities or public bonds by setting a pace that encourages faster change,” said Fiona Hagdrup, manager of the loan fund.

“We will do this by using our relationship network, including collaboration with trade associations and climate-focused bodies and other ESG organisations, actively to engage in lobbying for greater disclosure of ESG risk factors and their management and more ambitious commitments to sustainability targets, environmental and social, by companies and sponsors over the short, medium and long term.”

‘Foundational’

Speaking to IPE, Hagdrup said integration of environmental, social and governance factors had been part of the asset manager’s investment process since 2013, but that the development of a proprietary scoring methodology was a “tipping point” in the evolution of the fund.

“That is not trivial; it is foundational,” she said, speaking of the expertise and experience that feeds into the methodology, and the confidence that came from being able to “quantify what good looks like” when it came to sustainability characteristics.

Institutional investor allocation to alternative assets such as private debt is growing, and many investors are also ratcheting up sustainability-related demands.

Hagdrup said Nordic and Dutch institutional investors in particular had had a high bar for a long time on sustainability and that the “avant garde was expecting and demanding proofs of not just ESG risk consideration but a measurement of where a company is at on its sustainability journey, and that is the bar we’re now clearing”.

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