2018 Environmental, Social, and Governance Report
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2018 Environmental, Social, and Governance Report Who We are Who We are The paper used in this report is 100% Legal Statement post-consumer waste, FSC* certified, This Report was created to summarize Cerberus’, and certain of its portfolio companies’, and made with wind power. Environmental, Social, and Governance (“ESG”) program only. It is not intended to summarize or describe any investment performance of the Cerberus Funds and Accounts * Forest Stewardship Council. FSC certification ensures that products come from or individual investments. The information contained herein may contain “forward looking responsibly managed forests that provide environmental, social, and economic benefits. statements”. Such forward looking statements, which can sometimes be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “intend”, “believe”, “continue”, or other variations or comparable language, are subject to various risks and uncertainties and actual events or results may differ materially. As such, they should not be relied on in any manner. This Report is provided solely for informational purposes only. It is not intended to be, nor should it be construed or used as, an offer to sell or a solicitation or any offer to buy, an interest in any Cerberus Fund or Account. Cerberus personnel generally adhere to the Cerberus ESG policy stated herein in connection with the exercise of their professional responsibilities, including their duty to manage various investments held by the Funds and Accounts. The ability and rights of Cerberus personnel to impose the Cerberus ESG policy on a portfolio company or other related investment is strictly limited to the rights such personnel may exercise (or elections they may make) as the representative of an investor, member or partner in the entity that owns such investment, subject to the organizational documents relating to such investment. Nothing herein shall imply (or be construed to suggest) that Cerberus (or any of its personnel or representatives) controls the management, policies, or actions of any other company (including portfolio companies) to any extent beyond that which may be expressly set forth in the organizational documents of such company. It is the policy of Cerberus to respect the corporate structure and to require that each of its affiliated companies (including portfolio companies) govern themselves in accordance with their respective organizational documents. 2018 Cerberus ESG Report | 1 Contents 1 Who We are Message from the ESG Committee Chairman 7 Introduction About Cerberus 8 Cerberus’ Proprietary Operating Capabilities 10 At Cerberus, we believe responsibly addressing certain environmental and social issues, as well as prudent governance, helps to mitigate risk 2 and create more valuable companies and properties in the long run. This perspective is reflected in our culture and approach to evaluating ESG within Cerberus 4 transactions and managing investments. Our focus on Environmental, The Evolution of Our ESG Program 14 Social, and Governance (ESG) risks and opportunities spans the Conclusion Our ESG Journey 15 entire investment lifecycle, from pre-investment diligence through Looking Forward 56 acquisition, from F-100 (First 100 days of transition) through portfolio The Cerberus ESG Committee 16 management, and, ultimately, exit. The Cerberus ESG Policy 17 This report is intended to demonstrate the history, depth, and breadth Comparison to Other ESG Principles 18 of ESG work at Cerberus, as well as our current ESG operating rhythm. SGI Acquisition: The “Frontier Plus” Investment 20 It also describes our most recent efforts to measure and improve our performance with regard to ESG principles as applied to our portfolio 5 of companies, investments, and properties around the world. 3 Appendix Through our ongoing commitment to ESG best practices, Cerberus has realized practical and tangible benefits for our investments and, ESG in the Cerberus Portfolio Glossary 60 ultimately, our investors. The Cerberus ESG Formula 26 Biographies of ESG Committee Members 61 The Cerberus ESG Process 28 Biographies of Other Cerberus ESG Resources 64 ESG Integration Throughout the Investment Lifecycle 29 Technology Resources Deployed in the ESG Program 30 The Cerberus ESG Evaluation Tool 31 Collaboration Throughout the Investment Lifecycle 32 Spectrum of Collaboration 33 Cerberus General Counsel Summit 2018 34 Commercial Value Through Consistency and Collaboration 36 Overview of Cerberus' ESG Activities 38 Case Studies 40 Cerberus ESG Incident Reporting Process 52 1 Who We Are Cerberus is a global leader in alternative investing with industry- leading operating expertise. Founded in 1992 and headquartered in New York, with 18 offices worldwide, we have approximately $39 billion in assets under management across complimentary credit, private equity, and real estate strategies. For over 26 years, Cerberus has been a trusted partner to many respected investors from around the world. Message from the Whether investing in private equity, real estate, or global credit, we have provided operating expertise, capital, and innovative solutions to improve performance and drive greater value for our funds’ investments. And we will continue to do so in the future. We believe that our team, our multi-disciplinary investment ESG Committee Chairman platforms, our vision, and our operating capabilities can generate strong risk-adjusted returns regardless of the marketplace. We also believe that our ESG initiatives have similarly improved performance and contributed to the returns of our investments. 2018 has been an exciting year for our ESG program. We have increased the size of our committee, engaged in new geographies, expanded the use of technology, and actively partnered with our professionals – both internally and at our portfolio companies. At the same time, we continued to build out our ESG capabilities for the future. Before embarking on a recitation of our 2018 ESG accomplishments and reviewing our 2018 Annual Report, it is always worth remembering that our commitment to ESG as a driver of value goes back many years. We are not new to assessing and analyzing ESG matters – it is part of the Firm’s overall commitment to excellence and compliance. We were sensitive to environmental impact and sustainability long before others recognized the need to diligence and address these issues; we were concerned with factory safety, wage and labor issues, and supply chain touch points before many regulations were even imposed; and we have focused on corporate governance, compliance, culture, and responsibility since our inception in 1992. This past year, our efforts intensified around consistency and collaboration in order to drive greater commercial value. From a consistency perspective, we continued to obtain better data and metrics in order to track meaningful and accurate information. From a collaborative perspective, we established key contacts at each investment and customized our ESG efforts and expectations to make them more practical and consequential according to specific needs and requirements. In 2018, we also added several important members to our ESG Committee: Frank Bruno, the Co-CEO of Cerberus, Sheila Peluso, the Head of Human Resources; and Jayne Binzer, a Senior Operating Executive in Cerberus Operations and Advisory Company. Toward the end of the year, Cerberus Capital Management, L.P. made a strategic acquisition of SGI Frontier Capital (“SGI”), a leading private equity firm focused on frontier markets in Asia and Africa. SGI already has a robust ESG program and we look forward to merging our efforts and processes together and opening our aperture to include ESG issues in countries such as Ethiopia, Georgia, and Mongolia. Finally, we remain committed not just to maintaining our excellent ESG program, but to proactively build upon it as we take our focus and initiatives into 2019 and beyond. Andrew Kandel Global Chief Compliance Officer, Senior Legal Counsel, and Senior Managing Director, Cerberus Capital Management, L.P. 2018 Cerberus ESG Report | 7 Who We are Who We are Dublin About Cerberus London Baarn Who We Are Amsterdam Cerberus is a global leader in alternative Ulaanbaataar investing with expertise in credit, private Frankfurt equity, and real estate strategies, and San Francisco Chicago Tbilisi New York Beijing industry-leading operating platforms. Madrid Tokyo We were founded in 1992 and today Los Angeles comprise over 750 employees in 18 locations globally. Hong Kong Cerberus manages assets on behalf of many of the most respected institutional Addis Ababa investors worldwide. Our investor Singapore base includes pension plans, insurance companies, endowments, foundations, and sovereign wealth funds. Sao Paolo Cerberus Invests Across Three Complementary Platforms 1992 $39bn 750 18 Global Credit Real Operational Founded AUM Total Employees Global Offices 1 Opportunities 2 Estate 3 Private Equity Multi-disciplinary platforms Global real estate platforms Value-driven investors in business with expertise investing in: with the flexibility to invest worldwide, focused on: Portfolio Companies Real Estate Assets across the capital structure in: » Corporate credit and » Businesses that can benefit $70 bn revenue 200 buildings distressed debt » Non-performing loans from improved operations » Mortgage securities and assets » Commercial real estate » Complex corporate carve-outs 400,000 employees 12,500 units and divestitures » Middle-market