Value creation through responsible investing

Roc Partners had integrated responsible investing for many years with a consistent goal of setting up businesses for long term success. Michael Lukin and Samantha Bayes discuss our integrated approach and framework for responsible investing and the importance of this as we look ahead at the increasing importance of responsible investing in creating value for investors and businesses.

Andrew Muston: Hello, I'm Andrew Muston head of Wholesale at Roc Partners. And today, I'm joined by Michael Lukin, Managing Partner and Samantha Bayes, Senior Associate at Roc Partners we recently published our first annual report focusing on responsible investing. And today we want to spend some time better understanding Roc's approach to responsible investing and how that style investing is influencing private markets and value creation. So Mike, I'll start with you. What is Roc’s mindset around responsible investing and the opportunity for value creation in private markets.

Michael Lukin: Thanks Andrew first and foremost, it's the right thing to do. So, we have obligations as an investor in markets to not only our investors but to the community as a whole. And so, everything we do is about that interaction between our portfolio companies our guidance as an investment manager and the subsequent outcomes when we look at responsible investing activities.

The way we think about it from an investment perspective, however, is that we're really, when you're a private markets investor, it's about mitigating risk to a certain extent and historically responsible investing the way we have integrated into our process is about mitigating the risk when we look to sell a business or we operate a business, that we have a contingent liability on the balance sheet. And that might be a poor governance structure, it might be environmental liabilities, it might be a business that's not set up for success into the future. And so, everything we do around our investment activity is very much integrated into how do we create a business that is robust and sustainable not only for our ownership period but decades to come post that period. The approach we take when we look at these businesses is, historically I think it's been about risk mitigation and downside risk, but increasingly and we're seeing this when we talk to investors globally is it's about upside potential as well. So historically, ten years ago, we talked about, mitigating liabilities on the balance sheet and risk in the business, today more and more we're seeing, to a certain extent, there will be businesses that are unsalable in five to seven years because there will be no investor on the other side that will want to take that risk.

Similarly, there will be businesses that will benefit from a more, highlighted approach to responsible investment and we expect those types of businesses to actually outperform. So in essence, a business that can point to great credentials around sustainability or great governance structures or great diversity amongst their workplace will actually result in a higher earnings multiple when we go to sell that business and so from our investor perspective, we're actually being negligent if we're not taking into account responsible investment criteria because we're actually leaving money on the table. And so we we've always had a very much an integrated approach into responsible investment. We build it into our investment team. We build it into our investment papers. We build it into our portfolio management and our portfolio company planning processes, as simply part of the investment activity in operational value ad tha