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Daily Archives: October 24, 2016

The Concealed Risks in Private Credit Investing

Asian Private CreditBy ADM CapitalOctober 24, 2016

For ADM Capital, our Asian private credit strategy has consistently generated an IRR of 18%+ over the last 5 years. In comparison, Emerging Market high yield bonds have returned a CAGR of 7.1% over the same period. Indeed, in the last 12 years, we have invested in 133 private deals amounting to over USD3.3bn across…

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ADM Capital Stewardship and Engagement Policy

General Statement

Our stewardship commitments are an integral part of our approach to our investment activities and contribute to our ability to deliver returns for our clients.ADM Capital, through its lending, engagements and by example, strives to foster good corporate governance, respect for the environment, responsible labour policies and ethical business practices. We believe these sustainability practices will
benefit the local communities in which we operate, as well as ultimately improve business efficiency and performance of the companies we finance so that we can achieve our ultimate goal of optimising returns for our investors.

We thoroughly evaluate each company prior to investing and continue to monitor performance, including on E&S compliance matters, on a regular basis once an investment has been made. Prior to an investment, we carry out detailed due diligence, and we seek to have regular dialogue on financial, operational and governance issues with all of our companies. We believe that constant and effective monitoring of companies and their performance is an integral part of our investment process

We implement our stewardship policy based on the materiality of ESG factors on financial and/or operational performance, specific ESG factors with systemic influence, and specific ESG factors based on input from clients. We consider the extent to which companies are:

  • Setting strategic objectives that build a long-term sustainable business plan or financial covenant mode
  • Implementing high quality business practices
  • Managing risk effectively, as seen from the perspective of multiple stakeholders
  • Implementing an appropriate capital structure, including the structure of our ADM Capital loan within the overall capital
    structure
  • Promoting good corporate governance, including strong corporate cultures, management information reporting systems and appropriate
    policies in respect of matters such as human resources, environmental and social governance, accounting and audit oversight,
    etc
  • Communicating transparently and producing high quality disclosures and reporting

We also assess the industry in which a company operates as we recognize that it exposes companies to risks and structural limitations that are specific to each such industry.

ADM Capital requires external E&S due diligence (including site visits) and development of an Environmental Social Action Plan (ESAP) as a condition precedent to entry into all private credit investments (unless otherwise agreed by the IAC based on exceptional circumstances) and reporting on compliance with ESAPs is maintained throughout the life of each portfolio company investment unless a default, restructuring or other deviation subsists. We set targets for engagement through our ESAPs, which highlights the ESG risk profile of each
transaction. ESAP compliance is included in our loan documentation as conditions precedent or conditions subsequent

We seek to take a board of directors or board observer-status with our financing whenever possible and define these in our negotiations and financing documentation. To facilitate collective engagement, we are also members of the Principles for Responsible Investment and the Hong Kong Green Finance Association.

ADM Capital Environmental, Social and Governance Policy

General ESG Policy Statement

ADM Capital believes that we can help foster sustainable development through our own operations and also through our influence with companies in which we invest in the Asia Pacific region.

ADM Capital primarily works in the emerging markets where the challenges we face such as environmental degradation, corruption, urbanisation, are particularly acute. ADM Capital strives to foster good corporate governance, respect for the environment, responsible labour policies and ethical business practices. We believe these practices will benefit local communities where we lend, as well as ultimately improve business efficiency and performance of the companies we finance so that we can attain maximum returns for our investors. It goes without saying that we and the companies we finance must comply with applicable national law, including those laws implementing host country obligations under international law. We believe that integrating robust Environmental and Social (E&S) management into our investment process strengthens our investment decision-making and delivers increased value to investors.

Additionally, we are aware of the role ADM Capital can play in both mitigating and adapting to our changing climate. Scientific evidence shows that changes to our increasingly erratic and warming climate are in part driven by human actions. The Intergovernmental Panel on Climate Change (IPCC) report indicates that greenhouse gas (GHG) emissions are at historically high levels and, if left unchecked, the impacts to our economy, environment and society may be significant. This represents a global risk to economies, markets and communities. We believe that major shifts in consumption patterns, technologies and regulation will be needed to drive substantial and sustained reductions in GHG emissions. At the same time, we will need to invest to adapt to our changing climates. We believe these shifts represent both risk and opportunity to our portfolio companies and that ADM Capital can help support the transition to a low carbon and climate resilient economy, both from a climate mitigation and a climate adaptation perspective.

Consequently, ADM Capital has established this ESG policy and an overarching Environmental and Social Management System (ESMS) to guide our ESG integration process. The ESMS documents our financing process and combines the elements that enable us to integrate ESG in our activities as follows:

  •  We also follow the Exclusion List of the IFC and any other exclusion criteria required by our funds.
  • We use a proprietary ESG toolkit based on the Sustainability Accounting Standards Board’s (SASB) industry standards and MSCI’s ESG ratings methodology to screen our opportunities for E&S risks and opportunities.
  • All ADM Capital projects are managed according to IFC Performance Standards (and others where relevant) throughout the investment process. This starts with strategy setting through to investment origination checked against an exclusion list, structuring, due diligence, monitoring, reporting and on to exits.
  • We engage with prospective clients throughout the due diligence stage and identify areas of E&S progress for the term of our financing. We believe these will contribute to helping them manage their risks and opportunities over time.
  • We identify specific KPIs for new investments and also seek to track E&S KPIs across the portfolio. These are monitored and reported to our Executive Committee and investors to show value add of the ADM Capital E&S integration in a transaction and across the portfolio.
  • We empower our investment team to address E&S questions in a systemic manner and with the companies we finance throughout the financing cycle. We include our ESG expectations in our financing documentation.
  • An ESG Committee reports to the ADM Capital Executive Committee and supports implementation of the ESMS, reinforces ongoing staff training, helps review our E&S exposure from a portfolio perspective, and evaluates and introduces new policies and procedures, where relevant.

Emphasising ADM Capital’s sustainability commitment and starting this journey, in 2006, ADM Capital established the ADM Capital Foundation (ADMCF) with a focus on stemming environmental degradation and improving local livelihoods. This allows us to view needs first-hand and to act on perceived imbalances. Our research in particular, provides guidance in terms of both risk management and value addition. ADMCF also provides E&S advisory support to ADM Capital.

ADM Capital was one of the first signatories to the UN-backed Principles for Responsible Investment (PRI) in Asia in 2008 and remains committed to these principles in its investment activities. In July 2020, PRI granted ADM Capital an A+ rating, the highest possible score, for Strategy and Governance and an A rating for Fixed Income – Corporate Non-Financial. This score is an independent recognition of ADM Capital’s attention to sustainable investing and its Environment, Social and Governance (ESG) integrated investment process.

ADM Capital Anti-Slavery and Human Trafficking Policy

Purpose of This Policy

Hong Kong currently does not have a Modern Slavery Act. Asia Debt Management Hong Kong Limited (“ADM Capital”) will reference UK’s Modern Slavery Act 2015 (the “UK Act”) as the foundation for this policy. ADM Capital will also reference IFC’s Good Practice Note on Managing Risks Associated with Modern slavery. Modern slavery can occur in various forms, including servitude, forced or compulsory labour and human trafficking, all of which have in common the deprivation of a person’s liberty by another in order to exploit them for personal or commercial gain. This document sets out the policy of ADM Capital with the aim of the prevention of opportunities for modern slavery to occur within its operations or its funds’, portfolio companies or supply chain.

In determining whether a situation involving slavery, servitude or forced, compulsory labour or human trafficking exists, regard may be had to all circumstances, including consent or personal circumstances (including family relationships, mental or physical illness, and whether the person is a child), as well as the principles of construction in Article 4 of the European Convention on Human Rights of 1950.

Additionally, ADM Capital is guided by the International Bill of Human Rights and supports the UN Declaration of Human Rights and the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. ADM Capital also supports the following standards, which reference modern slavery:

  • The UN Principles for Responsible Investment; and
  • IFC Performance Standards

ADM Capital has a zero-tolerance approach to modern slavery. We are committed to acting ethically and with integrity in all our business dealings and relationships and to implementing and enforcing effective systems and controls to ensure modern slavery is not taking place anywhere in our own businesses or those of the portfolio companies owned by funds which we manage or advise.

ADM Capital Climate Change Policy

Climate – General Statement

Changes to our increasingly erratic and warming climate have been recorded and these are, in part, driven by human actions, according to the scientific community. We believe that major shifts in consumption patterns, in technologies and in regulation will be required to drive the needed substantial and sustained reductions in GHG emissions. At the same time, we will need to adapt to our changing climates. We believe this represents both risk and opportunity to our portfolio companies and that as risk managers we must attempt to quantify the risk climate change represents to our investments, while as asset allocators we can play a role in supporting the transition to a low carbon and climate resilient economy.

Funds managed or advised by Asia Debt Management Hong Kong Limited (“ADM Capital”) have duties to source and supervise portfolio investments responsibly on behalf of investors in these funds. Climate change represents the single most important sustainability factor given its systemic nature and the material influence on global financial markets. Neglecting climate change analysis could cause the mispricing of risk and the misallocation of assets. As a result, to assist in ensuring a prudent investment process, we have adopted this Climate Change Policy to present ADM Capital’s vision as to how we can be better equipped as risk managers and contribute to mitigating and adapting to climate change. The Climate Change Policy, we believe, will assist us to generally operate as a more resilient, forward-looking and long-term driven global business, to map out our challenges and our mitigation strategy to address climate risks and to articulate the governance we have put in place to lead this approach.

ADM Capital is developing a roadmap to aid our implementation of this policy and to support us to align with the Task Force on Climate-related Financial Disclosures (TCFD). This policy will evolve with our climate-related initiatives, which will be reflected in our annual sustainability report.

ADM Capital Foundation (ADMCF) since 2006 has supported research, education and targeted action on climate and its related components such as land use, air pollution and water scarcity. Among the initiatives ADMCF has helped created that are relevant to this policy are the Tropical Landscapes Finance Facility for Indonesia, China Water Risk, Clean Air Network and HK 2050 is Now. Each of these have involved wide engagement with relevant organizations working in the area of climate and the environment more broadly and formed a base of knowledge and research for ADM Capital.

Processes for managing climate-related risks

ADM Capital is continuously working towards improving its internal processes to manage climate related risks and opportunities, both at the portfolio company level and at the company level.

ADM Capital follows a systematic E&S process for all our investments to ensure material climate-related risks are managed to the best of our abilities. We have an Environmental Social Management System (“ESMS”) in place to provide a set of procedures, internal capacity and policies to identify, manage and report on ADM Capital’s exposure to current and potential portfolio ESG risks. We identify climate-related risks as a component of our ESG risk assessments. An in-house ESG toolkit provides investment analysts with the ability to understand and better manage these risks at the earliest stage of our investment cycle. Our objectives from these processes include to:

  1. ensure that ESG factors are part of the decision making throughout the investment cycle;
  2. support ADM Capital and clients to identify and manage ESG risk, as well as identify opportunity;
  3. create a framework to engage with clients and stakeholders on ESG standards;
  4. support performance monitoring and identify areas where ESG risk should be mitigated within a consistent approach across the funds;
  5. help ADM Capital capture the value of ESG integration and demonstrate its track record to investors and other counterparties.
 

ADM Capital Terms and Conditions

Legal Notice
The information contained in this website is not intended and should not be used or construed as an offer to sell, or a solicitation of any offer to buy, securities of any fund or other investment product in any jurisdiction. No such offer or solicitation may be made prior to the delivery of definitive offering documentation. The information in this web site is not intended and should not be construed as investment, tax, legal, financial or other advice.

General Fund Risk Disclosure
The funds described in this website (each, a “fund”) are not subject to the same regulatory requirements as mutual funds, including mutual fund requirements to provide certain periodic and standardised pricing and valuation information to investors. There are substantial risks in investing in a fund. Persons interested in investing in a fund should carefully note the following:

  • A fund represents a speculative investment and involves a high degree of risk. An investor could lose all or a substantial portion of his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in a fund.
  • An investment in a fund should be discretionary capital set aside strictly for speculative purposes.
  • An investment in a fund is not suitable or desirable for all investors. Only certain persons meeting certain additional eligibility criteria may invest in a fund.
  • A fund may employ leverage and other investment techniques, and such leverage and other investment techniques may result in increased volatility of the fund’s performance and increased risk of loss.
  • A fund may trade in commodities, futures and other derivatives, which may increase the risk of loss of the fund. Fund investments are illiquid and there are generally significant restrictions on transferring interests in a fund. There will likely be no secondary market for the interests of a fund.
  • A fund may have limited or no operating history.
  • The investment manager of a fund may have certain discretionary authority over the fund’s assets.
  • A fund may invest in a limited number of securities or instruments, which could result in a limited degree of diversification and higher risk.
  • A fund generally involves a complex tax structure, which should be reviewed carefully. A fund’s investment strategy may cause delays in important tax information being sent to investors.
  • The management fees of a fund’s investment manager may be substantial regardless of whether the fund has a positive return, and will offset the fund’s profits.
  • A fund is not required by regulators to provide periodic pricing or valuation information to investors.
  • There are likely to be a number of conflicts of interest or potential conflicts of interest in connection with an investment manager’s management of fund assets.​
The above summary is not a complete list of the risks and other important disclosures involved in investing in funds. Before making any investment in a fund, investors are advised to thoroughly and carefully review offering documentation with their financial, legal and tax advisors to determine whether an investment is suitable.

By entering our site, you acknowledge that you have read and agree to these terms and conditions.

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