(Bloomberg) -- Avenue Capital Group is seeking a buyer for its impact investing business after one of the biggest US public pension funds lost interest in the portfolio, according to people familiar with the matter.
The $12.2 billion investment firm run by billionaire Marc Lasry is considering a sale after the New York State Common Retirement Fund, which had been the anchor investor in its first Sustainable Solutions Fund, declined to participate in a second fund under the same strategy, said the people, who asked not to be identified discussing confidential information.
If Avenue fails to find a buyer, it may explore winding down the fund and dismissing employees, the people said.
Spokespeople for Avenue and the New York state pension fund declined to comment.
Avenue currently oversees more than $400 million in its first Sustainable Solutions Fund, roughly $300 million of which came from New York state’s pension fund in 2020. Lasry’s firm had been seeking to raise at least as much for a second fund, the people said.
The pension fund opted to avoid a second round amid concerns over the high rate of staff turnover at Avenue’s impact business, the people said.
Between the first fund launch and efforts to raise money for the second, departures by key portfolio managers and fund employees included Peter Pulkkinen and Rhys Marsh, both of whom now work at Lombard Odier Investment Managers. New hires for the fund in that period include Sean Coleman from FS Investments. John Larkin, head of impact investments, has remained throughout.
Pulkkinen, Marsh and Coleman didn’t reply to messages seeking comment. Larkin declined to comment.
Avenue had been seeking to bring in clients with a strategy based on private-credit investments in companies deemed capable of delivering financial returns alongside social and environmental impacts. The fund won an award in 2023 for its sustainability efforts.
To date, investments have included companies developing so-called scooper planes used to fight wildfires, as well as green household cleaning products and biofuels.
The development coincides with a broader retreat from ESG strategies as investment managers have struggled to persuade clients they can generate adequate returns. Funds that have focused on renewable energy have been particularly hard hit, with the S&P Global Clean Energy Index down 17% so far in 2024, putting it on track for a fourth consecutive year of losses.
Meanwhile, an analysis by MSCI Inc. earlier this year found that private capital funds have consistently made more money on their renewables investments than on their holdings of oil and gas.
New York state’s pension fund, which oversees about $270 billion, has a track record of targeting sustainable investments. Comptroller Tom DiNapoli has sought to restrict investments in fossil fuels, including an announcement earlier this year that the fund would divest from Exxon Mobil Corp.
Avenue, meanwhile, has focused on other strategies, including the Avenue Europe Special Situations Fund V, which closed in May with more than $1 billion of commitments. Money came from existing and new investors, including public and corporate pension funds, Avenue said at the time. The asset manager is also known as a major holder of sports assets, including investments in established leagues and women’s athletics.
--With assistance from Gillian Tan.
(Adds no comment from portfolio manager in eighth paragraph, details on returns for private capital funds in 12th.)
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