1. Overview

Freeport Financial Partners (“Freeport” or “Firm”) provides investment advisory services to certain funds and separately managed account vehicles (each a “Client” and collectively, the “Clients”). The Clients will primarily invest in floating-rate senior secured loans issued to lower middle-market borrowers (“Borrowers”) backed by private equity firms (“PE Partners”).

Freeport believes that the integration of environmental, social and governance (“ESG”) considerations into the investment process is in line with the Firm’s fiduciary responsibility and investment objectives. Freeport strives to manage financially material ESG risks and opportunities (collectively, “ESG Factors”) through the application of the Firm’s internal investment process and collaboratively with its PE Partners.

Freeport is a subsidiary of Moelis Asset Management (“MAM”), an asset management holding company that supports a broad array of asset managers across a variety of strategies. This ESG Policy is informed by the tenets outlined in MAM’s ESG philosophy.[1]

 

2. Purpose

For purposes of this policy, Freeport has adopted the International Sustainability Standards Board’s (“ISSB”) definition of materiality, which defines information as material if “omitting, misstating or obscuring that information could reasonably be expected to influence [investor] decisions”.[2]

This ESG Policy (“Policy”) outlines the Firm’s approach to integrating the evaluation of ESG Factors into the investment process. As a signatory of the United Nations-backed Principles for Responsible Investment (“PRI”), the Firm recognizes the importance of the PRI in shaping ESG practices and defining ESG principles for financial services participants. As such, this Policy has been drafted to align with the PRI’s six principles and ensure the Firm’s approach to ESG integration is aligned with its status as a PRI signatory.

 

3. Scope

This Policy is intended to apply across Freeport’s investment process, from initial screening through exit/maturation/loan satisfaction.[3] Freeport will attempt to enact the provisions of this Policy where reasonable and practicable. However, the Firm may be limited by Freeport’s non-controlling interests in its Borrowers, the ongoing level of information provided by PE Partners and Borrowers, the independence of the financing facility, and the level of engagement with Borrowers, among other factors.

Additionally, as a fiduciary, Freeport is legally bound to act in the best interest of its Clients. Therefore, in no case shall this Policy supersede or otherwise require action on the part of the Firm that is inconsistent with this duty or the contractual agreements between Freeport and its stakeholders, which include; (i) the Clients; (ii) investors in the Clients; (iii) PE Partners; (iv) Borrowers; or (v) other relevant parties.[4]

 

4. ESG Management

It is the responsibility of the Co-ESG Officers[5] and Freeport’s investment committee (“Investment Committee”) to provide oversight of this Policy. Freeport’s investment team is responsible for the implementation of the ESG integration process, with support on various reporting and documentation items provided by the Firm’s compliance and investor relations teams.

The Firm’s Chief Compliance Officer (“CCO”) or the CCO’s delegate will ensure training on this ESG policy, and ESG matters more generally, is conducted on an annual basis. The CCO or the CCO’s delegate will also ensure that the Policy is made available to each new employee upon hire and upon any material update to the Policy, thereafter.

 

5. ESG Integration

Freeport seeks to integrate the evaluation of ESG Factors throughout the Firm’s investment process, subject to the limitations outlined in the Policy.

 

Pre-Investment Activities:

  • PE Partners:

For all new investments, the Firm will request each PE Partner to complete an ESG-focused questionnaire (“PE Partner Questionnaire”).[6] In the event the Firm engages with the same PE Partner for multiple investments, Freeport will request the completion of the PE Partner Questionnaire only once per calendar year, as deemed necessary and practical. Freeport’s underwriting team and Investment Committee each review a PE Partner’s response to the PE Partner Questionnaire, including identifying PE Partners that do not have a formalized approach.

 

  • Deal Screening:

Freeport seeks investments with companies that operate in stable industries and are not generally expected to be susceptible to reputational and headline risk.[7] During the deal screening phase, investment professionals review for the potential characteristics that may indicate reputational or headline risk. In the event such a risk is identified, it will be reported to the Investment Committee to determine the investment approach.

 

  • Initial Due Diligence:

Freeport conducts initial due diligence on each potential investment to identify potential material risks. The investment team utilizes Freeport’s ESG questionnaire (“ESG Questionnaire”) during initial diligence to identify potential material ESG risks.[8]

Freeport typically engages third parties to aid in the production and analysis of specific diligence items, such as i) legal diligence, including litigation, contractual and corporate governance matters; ii) background checks; iii) market analysis; and, as necessary, iv) various other consultants for review of items such as regulatory and environmental compliance.

 

  • Investment Decisions:

Freeport’s Investment Committee reviews a detailed, internally drafted report of recommendations with respect to each of its potential investments. This report includes a summary of the ESG-related diligence process, and any identified ESG Factors. The Investment Committee must achieve unanimous agreement among its members to proceed with an investment.

Documentation: Each completed ESG Questionnaire will be maintained by the relevant investment team member. Any ESG Factors identified during due diligence will be communicated to the Investment Committee as part of the investment recommendations for any prospective investment.

 

Investment Management:

  • Monitoring and Engagement:

Freeport does not typically hold a board seat at or have an ownership interest in a Borrower. Freeport does however, typically meet with the management teams of its Borrowers several times a year. During these meetings, investment professionals may engage on ESG Factors identified during due diligence or that arise during the holding period, and may follow-up to mitigate those ESG Factors, as necessary.

Throughout the holding period, Freeport will request the completion of an annual ESG Questionnaire from each Borrower.

In the event an ESG Factor is identified through engagement with a Borrower, the ESG Questionnaire, or any other means, Freeport’s Investment Committee will review the risk to determine the appropriate course of action. For example, Freeport may choose to escalate the frequency of its engagement with management. If an ESG-related incident occurs at a Borrower, Freeport may choose to engage with the Borrower, PE Partners, or third parties in response, as deemed necessary. In certain cases, Freeport may deem a risk to be outsized relative to Freeport’s risk tolerance. In such instances, Freeport will seek to exit the investment at the earliest opportunity.

Documentation: Any change(s) to previously identified ESG Factors, or any newly identified ESG Factors related to a Borrower, including responses to the annual ESG Questionnaire, will be properly documented.  In addition, Freeport will document any formal action undertaken in response to data received via the ESG Questionnaire or other monitoring efforts.

 

6. Reporting

Freeport will respond to investor requests for ESG information on a case-by-case basis. At the Firm’s discretion, Freeport may include ESG-related information in periodic reports to limited partners, including as part of the Firm’s annual general meeting.

In the event a material ESG incident arises at a Borrower, Freeport will disclose such incident, as required by the Limited Partnership Agreement or other governing documents for the respective Client.

 

7. Firm Alignment with ESG Practices

Freeport is committed to conducting itself in line with this ESG Policy. Each employee is guided by the MAM Employee Handbook, Firm’s Code of Ethics and Firm’s Compliance Manuals. Additionally, the MAM Code of Ethics applies to certain Freeport associated persons. Collectively, these documents set forth the Firm’s required standards for behavior. These policies emphasize the Firm’s commitment to observing all applicable laws, outline basic standards of legal and ethical conduct, and provide a reporting mechanism for legal and ethical violations.

 

8. Review and Update

Freeport’s Co-ESG Officers, Management Committee and/or delegate will conduct a review of the Firm’s ESG policy on at least an annual basis. This Policy may be supplemented or revised based on these reviews.

 

 

 

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[1] Please refer to MAM’s ESG Philosophy Statement for additional detail.

[2] See: https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s1-general-requirements/#standard

[3] While the vast majority of Freeport’s investment comes in the form of senior secured loans to Borrowers, in certain instances the Firm may take a passive equity position. In such instances, Freeport will attempt to follow the provisions of this Policy as practicable, subject to the facts and circumstances of each individual investment.

[4] Such contractual duties may be outlined in the Private Placement Memorandum, Limited Partnership Agreement, or others.

[5] Freeport’s ESG Officers are Matt Gerdes and Joe Walker.

[6] This practice began in January 2024 and will not be applied retroactively.

[7] Examples of such industries that may be susceptible to reputational or headline risk may include; (i) illegal drugs; (ii) gaming and casinos; (iii) oil & gas; (iv) weapons manufacture; and (v) tobacco, among others. Freeport evaluates each potential investment on a case-by-case basis.

[8] The ESG Questionnaire is comprised of questions on potentially material ESG risks and opportunities that may arise over the course of Freeport’s investment. The ESG Questionnaire is expected to be reviewed on an annual basis to ensure relevant risks and opportunities are included.