Peloton Capital Management sees a big opportunity to boost international exposure at the newly acquired Glass Lewis, as the proxy company witnesses growing demand for its ESG advisory and data services.
The firm, formed by veterans of Ontario Teachers’ Pension Plan more than two years ago, bought a majority stake its the investment team’s former pension fund employer in an all-equity deal. The transaction provided an exit for OTPP – which bought Glass Lewis from Chinese firm Xinhua Finance in a $46 million LBO in 2007 – and for minority investor Alberta Investment Management Corporation.
The deal, which closed last week, exceeded the typical $25 million-$75 million investment size that Peloton targets and included capital from the firm’s chairman, Stephen Smith. Smith is also the CEO of Canada’s largest non-bank mortgage lender, First National Financial Corp.
Although financial terms were not disclosed, Steve Faraone, managing partner at Peloton, alluded to the high valuation attracted last year by the largest proxy advisor, Institutional Shareholder Services. The ESG data and research company inked a $2.3 billion deal with exchange organization Deutsche Börse for an 81 percent stake.
Proxy companies such as Glass Lewis provide asset managers with research and data on topics such as executive compensation and board elections. They make recommendations on how to vote on different issues at public companies’ annual meetings, with a focus on ESG and governance risk mitigation.
Investors’ growing reliance on proxy companies to advise them on ESG matters at board meetings was a key driver for this deal.
“We think corporate governance has become increasingly important,” said Faraone, speaking from Toronto. “It’s gone from compliance to something that’s more important. We anticipate the need for this type of research to be even greater.”
Peloton plans to leverage this accelerating demand at Glass Lewis by penetrating the European and Asian markets. Smith said: “We think there’s room to get the shares from ISS and expand in Europe and Asia, which includes [regions like] Japan, India, Australia.”
According to a 2019 research report by Charity ShareAction, Glass Lewis was being used by 31 percent of asset managers. This maded it the second largest proxy adviser after ISS, which had an 85 percent market penetration.
Founded in 2013, Glass Lewis advises on 30,000 corporate meetings annually.
Under Peloton, the aim will be to combine geographic diversification in terms of sales and marketing efforts, along with product additions. “I would say it’s an incremental business [to which] we are looking to add value-added investment services,” Smith said. “We are trying to think of what the investors want.”
Glass Lewis, which marks Peloton’s fourth investment out of Fund I and its first financial services investment, opened an office in Tokyo last year.
Peloton has investments in three healthcare services business: 123dentist, P3 Veterinary Partners and The Fertility Plan. Smith, who kicked off fundraising for the firm’s debut vehicle in January 2019 by committing $150 million, is the largest investor in the inaugural fund.