PRI signatory status found to have little to no effect on returns
According to Pitchbook’s latest analysis, ‘Are ESG investors underperforming?’, the PRI signatory status of funds was found to have little to no effect on returns.
The analysis looked at internal rate of return (IRR) and total value to paid in (TVPI) dispersion between non-signatory and PRI signatory funds across the world between 2010 and 2018. Asset classes included in the dataset were PE, real estate, real assets and private debt.
Pitchbook highlighted that this data encapsulated capital raised from GPs who made a public commitment to PRI and ESG; this is because not every PRI signatory has a developed ESG programme, while some managers have an extensive ESG commitment without being PRI signatories.
Performance is key
In some cases, the results suggested GPs with ESG commitments were underperforming, while in other cases (when other performance-impacting factors were used), PRI signatory status was not found to have much influence on returns.
Key findings demonstrated six vintages between 2010 and 2018 in private capital where the median IRR of PRI signatories underperformed compared to non-signatory managers. Only two vintages showed the reverse in the same timespan.
PRI signatories were also found to have underperformed by 0.81% against the benchmark, compared to non-signatories achieving a median return rate 0.38% above the benchmark.
After recognising a potential bias existing regarding the quality of PRI managers compared with non-PRI managers, and that these results do not take into account factors such as geography or fund size, which have demonstrated more influence over returns in previous studies, further analysis was performed to compare differences more directly. This revised analysis concluded the difference in return between signatories and non-signatories was not notable.
The report suggested ESG programme maturity, strategy and implementation could have influenced these results.
However, these findings might suggest the need for a revision of PRIs so they can better influence returns and better align with ESG philosophy.
According to Pitchbook’s data, there were 4,103 investment manager PRI signatories, 731 asset owner signatories, and 549 service provider signatories across the globe in April 2023.
For private markets, 2,351 GPs were known to have aligned with PRIs as at May 2023. This is a steady increase when compared to the 155 GPs aligned with PRIs in 2010.
Pitchbook used the PRI signatory directory and its own fund performance and cashflow data, mainly from LPs, to achieve these findings.