M&G’s private assets division launches a sustainable senior secured loan fund

5 October 2021

Sustainable investment opportunity designed for institutional investors, seeded by Prudential UK and Swedish government employees’ pension fund, Kåpan Pensioner

M&G is seeking more ambitious commitments by private companies and sponsors to sustainability over the long term

M&G today announces the launch of a new strategy for investors to gain exposure to private credit’s best-in-class companies from an environmental, social and governance (ESG) perspective and with an emphasis on sustainability characteristics.

The M&G Sustainable Loan Fund (‘the Fund’), which is managed by Fiona Hagdrup and Thomas Lane, combines M&G’s 22-year loan investing track record and firm-wide Sustainability & Stewardship resources to offer investors exposure to loans of companies demonstrating strong ESG credentials in the $1.5 trillion global loan markets. The Fund has launched with a €175 million investment from the Prudential With-Profits Fund, including the recently launched PruFund Planet, and the Swedish government employees’ pension fund, Kåpan Pensioner, which is making an initial €26 million commitment.

The Fund includes an explicit sustainability objective alongside its financial one. Achieving it involves a three-pronged approach, using screening, considered selection and M&G’s proprietary scoring methodology:

Exclusion – screening out companies who transgress behavioural norms or generate revenue from anti-sustainable and/or other specific business sectors, including thermal coal and oil and gas

Engagement – pursuit of a rigorous engagement strategy, involving both bilateral and collective action

Enhancement – tilting towards high-scoring companies and sustainable labelled instruments, including green, social, sustainability-linked loans and bonds, whose proceeds are either used for a specific purpose or are used for general corporate purposes, albeit linked to key performance indicators in keeping with a company’s stated sustainable performance targets.

M&G was one of the first non-bank investors to enter the European leveraged loan market in 1999 and is one of the largest loan managers in Europe today. The 23-strong Leveraged Finance team within M&G’s Private and Alternative Assets division, manages approximately €9 billion on behalf of institutional investors across a range of segregated and pooled loan funds, including the €3.5 billion M&G European Loan Fund that launched in 2005.

Fiona Hagdrup, manager of the M&G Sustainable Loan Fund, comments: “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. 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.”

Maria Giertz, CIO of Kåpan Pensioner, comments: “Kåpan’s main goal is to offer our members a good and stable pension. One way to achieve this is by continuously evaluating and reassessing the long-term sustainability of our investments. We have increasingly developed our ESG framework in order to achieve good sustainable returns. 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. Put simply, it was a good ESG fit.”

Will Nicoll, CIO of Private & Alternative Assets, M&G, says: “Private loans permit active ownership by their very nature, meaning a direct relationship with a borrower exists and frequent interactions facilitate engagement which should drive positive change in the asset class. Many asset owners and large pension schemes increasingly look for ESG exclusions and the reporting of sustainability considerations to be incorporated into strategies, alongside financial returns, and this strategy is designed to meet this growing demand while also harnessing the positive energy of engagement.”

Source: M&G