Sustainable finance disclosures
Integration of sustainability risks in investment decisions
Advantage establishes two types of Funds: classic funds (fund-of-funds) and investment clubs (fund-of-one).
When establishing classic funds, so far there has been no integration of sustainability risks in investment decisions. During 2022, ESG elements have been implemented in the investment due diligence, however the investment decision is not necessarily dependent on the outcome. The result of the ESG DD has solely been used as a part of Advantage’s risk management. Hence, for our current portfolio of classic funds (i.e., Article 6 funds), sustainability risks have not self-standing been deemed particularly relevant due to the focus and purpose of the Funds, which has been a result of the type of investors, whose requirements the Funds have been established to accommodate. Thus, the focus of the Funds has been to generate risk-adjusted returns by making investments, which can contribute to diversification of the investors’ portfolios. The investment philosophy/strategy of the Funds has been to invest in Funds with a size of minimum USD 500 million managed by mature and stable private equity firms with solid past performance. Due to this, the possible Portfolio fund managers are primarily based in North America. SFDR is European regulation and, currently, US regulation is lagging. Hence, not many North American managers have integrated sustainability risks in their investment decisions as defined in EU legislation. Also, historically, there has been another and less strict focus on ESG in the industry and hence the same applies for the Funds due to their vintages. However, this does not rule out the possibility that the Manager may establish future article 6 funds if these are assessed to best accommodate the Investor’s requirements.
When establishing investment clubs, sustainability risks are typically integrated in the Funds’ investment decisions.
No consideration of adverse impacts of investment decisions on sustainability factors
Advantage does not consider adverse impacts of its investment decisions on sustainability factors.
Advantage is a fund-of-funds manager with indirect holdings in portfolio companies through primary and secondary fund investments and minority co-investment holdings. Typically, these types of investments will not provide the level of control or influence to obtain all the required, relevant information, and thus, we often will have no means to ensure that we can receive the information regarding the detailed indicators, as specified in Tabel 1 of Annex I to the Commission Delegated Regulation (EU) 2022/1288, as amended, with regard to the content, methodologies and presentation of disclosures under the EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”). Currently, it is impossible for us to report on certain of the indicators, given the lack of information available, as we are not in a position to obtain and hence, to report on indicators, where we are not provided with the underlying information, required to be disclosed, by Portfolio fund managers. It is unlikely that we will be able to require our existing Portfolio fund managers to comply with our data request (i.e., post-investment), and thereby widen the data reporting for all of their underlying portfolio companies, especially since it regards non-EU Portfolio funds.
As the industry adopts the EU Regulation 2019/2088, we expect to be able to negotiate side letter positions with Portfolio fund managers requiring them to provide the information required to be reported on and disclosed in relation to future investments. As many of our Portfolio fund managers will not be subject to the EU Regulation 2019/2088 we can provide no assurances, but we will endeavor to solicit the referenced information. We believe that we will be able to successfully do so over time, collaborating with other professional and institutional investors, as industry practices evolve and further mature.
At Advantage, ESG risks as well as other material sustainability impacts are considered, however, we do not actively consider all of the sustainability adverse impacts specified in Tabel 1 of Annex I, as this is currently not possible for fund-of-funds managers.
Remuneration
The purpose of the Advantage's remuneration policy and -practice as well as incentive structure is to facilitate:
- Ensuring competitive remuneration,
- Ensuring an appropriate balance between fixed remuneration and variable remuneration,
- Commercial development in accordance with Advantage's and our funds’ business strategy, values, and long-term targets, and
- Ensuring sound and effective risk management, which does not encourage excessive risk taking.
Remuneration at Advantage does not take integration of sustainability risks into account, as defined in the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector.
The remuneration policy is produced to ensure compliance with the general considerations in § 9 of the Executive order no. 1151 of 24 October 2017, including that the remuneration policy is consistent with the principles of protection of customers and investors, and encompasses precautionary measures to prevent conflict of interests, as well as ensuring that the total variable remuneration does not undermine Advantage's opportunity to strengthen its capital base.
Appendix to Advantage Investment Partners A/S' 2023 annual report - Remuneration
Appendix to Advantage Investment Partners A/S' 2022 annual report - Remuneration.
ESG incorporation in the investment process
Advantage Investment Partners A/S is a private markets investment management firm, where the collective team invests on behalf of clients in investment opportunities (“Portfolio funds”).
At Advantage, we are committed to investing our clients’ capital in a responsible way and have integrated ESG factors, alongside commercial and financial factors, during investment due diligence and ownership. We have, as a signatory of the UN Principles for Responsible Investment, used the six RI principles as a framework to develop our ESG policy across all our investment activities.
We are driven by the belief that addressing ESG issues often is a crucial part of investment risk management, and effective mitigation of these issues may have a material impact on value creation in private equity, infrastructure, and real asset investments. We believe that mitigating ESG risks may strengthen downside protection for investment returns and enhance investor reputations, which can also lead to value creation. When considering a new fund commitment, we are committed to understanding the Portfolio fund manager’s willingness to adhere to sound ESG practices. Our primary due diligence process must thus identify how the Portfolio fund manager assesses and manages ESG risks.
We acknowledge and take into account, where necessary, that as an investor in primarily US based companies, a number of the challenges faced by its fellow global citizens, do not necessarily apply to all portfolio companies, given that compliance with local legislation rule out certain behavior. Furthermore, as a limited partner, Advantage does not have direct interactions with the management of the underlying portfolio companies, invested in by the Portfolio funds. Nevertheless, we are committed to use our influence where relevant, both when investing as well as in our own operations.
Advantage's overarching responsible investment objectives include that we must:
- Ensure that our Portfolio managers will endeavor to take account of ESG issues as part of the investment process, with the results forming a key element of the overall analysis on investment opportunities,
- Engage with the Portfolio managers to promote the importance of ESG issues, and assess how they factor ESG risks into their investment process,
- Provide training to Advantage's investment professionals on the ESG elements in the due diligence process and the importance of factoring these into the overall investment approach,
- Maintain ESG risk monitoring post-investment,
- Follow a policy of active portfolio management, highlighting Advantage's interest in ESG through routine interactions with Portfolio fund managers, and
- Continue to develop and enhance our ESG approach to maintain a leading position in the industry.
Due Diligence: At Advantage, we incorporate ESG factors into our investment due diligence process, as it can be crucial to harnessing the potential for value creation through effective ESG procedures, as well as in protecting the interests and reputations of Advantage and our clients. The ESG due diligence findings are formally documented as part of the final investment recommendations, with potential concerns flagged for consideration by the investment committee.
The ESG due diligence covers our potential business partners and projects on broad risk factors concerning Environmental, Social and Governance pillars. In the ESG DD, we pay particular attention to the governance pillar and screens the following three key risk areas at the portfolio fund managers:
- The commitment to ESG policies
- Incorporation of ESG into decision making
- History of responsible business conduct
To determine and cover the above-mentioned ESG key risk areas, we assess the following factors at the portfolio fund managers:
- Signatory to standard
- Inhouse ESG policy
- ESG in investment decision
- Enforcement of ESG on portfolio companies
- Reporting, and
- Responsible conduct
Our ESG due diligence is based on the ethical policy, the ESG policy as well as other information from our potential business partners. Due to our status as a fund-of-funds manager, it falls beyond our rights to monitor ESG-compliance on portfolio level, but we will perform our own risk assessment of ESG risks based on provided information from the Portfolio managers.
Primary and secondary fund investing: ESG risk management forms an important component of the operational risk assessment conducted on each manager as part of our primary due diligence process and each manager is rated for its ESG approach. Therefore, it represents a formal and documented part of the due diligence and covers the following areas:
- Whether the Portfolio fund manager has a formal approach to integrating ESG factors into the due diligence process,
- How the Portfolio fund manager engages with portfolio companies on ESG issues, and
- That the investment policy of the Portfolio fund is not in conflict with our Ethical Policy.
As part of our due diligence process, the focus is also on examining the potential for fraud, rogue activities, and other unethical behavior by the Portfolio managers as part of referencing and internet searches. The extensive cross referencing of Portfolio managers prior to investment, including both on-list and off-list referencing through our vast network, is an indication of how we make sure to make every effort to invest only in Portfolio managers that are of institutional quality and in Portfolio managers that understand the importance of reputation in the marketplace.
We assess and monitor financial sustainability risks during investment processes. The ESG DD has significant relevance to the assessment, determination, and monitoring of financial ESG risks.
Post-investment monitoring: ESG risks must be monitored as well as the portfolio funds’ exposures across portfolios.
Exclusion policy
Advantage will avoid investments in the following areas:
- The production or trade in products or activities deemed illegal under applicable laws or banned through international convention.
- The supply or purchase of sanctioned products, goods, or services to or from countries or regions covered by international sanctions.
- The production or trades in weapons of mass destruction or inhuman weapons or technology, which are subject to existing international prohibitions.
- The production of tobacco.
The blind-pool nature of private equity fund investments means that it may not always be possible to screen out companies pre-investment that are undesirable from an ESG perspective. In such cases, and in accordance with our wider ESG approach, we will seek to engage and influence the Portfolio fund managers to improve their standards of ESG governance. In addition, the Board of Directors must approve Advantage's Ethical Policy, which sets out the areas, which Advantage should avoid investing in, alongside other key elements of our ESG policy. Our Ethical Policy is intended to be part of the side letter for all fund commitments, or to be incorporated in the investment agreement by other means.
Sustainablity-related disclosures
Sustainability-related disclosures required to be published according to the Regulation (EU) 2019/2088 of the European Parliament and of the Council of November 27, 2019 on sustainability‐related disclosures in the financial services sector (“SFDR”).
Product disclosures
- NIC ANT V K/S
- NIC DCP VII K/S
- NIC DCP III K/S
- Advantage Core Infrastruktur DCP VII 2022 I A/S
- Advantage Core Infrastruktur DCP VII 2022 II A/S
- Advantage Core Infrastruktur DCP VII 2022 III A/S
Periodic disclosures as of December 31, 2023