January 20, 2026
When Core Assets Behave Like Risk Assets: A Governance Lesson for Private Markets
Recent reporting on a lawsuit brought by the North East Scotland Pension Fund against Federated Hermes has reignited an uncomfortable but necessary conversation in private markets.
At the heart of the dispute is not renewable energy itself, nor the broader ESG agenda. Instead, the case centres on a more fundamental question: how investment risk was classified, governed, and communicated over time.
The issue isn’t the asset, it’s the framing
According to court filings, the pension fund alleges that a £100m+ investment into a portfolio of Swedish wind farms was treated as part of a low-risk “core” infrastructure allocation, despite exposure to volatile power prices, leverage, and complex contractual structures.
Whether or not the claim succeeds, the case highlights a recurring structural challenge across private markets: assets that look stable in narrative terms but behave very differently in practice.
This is not unique to renewables. Similar dynamics appear in:
private credit with embedded equity risk
infrastructure assets with merchant exposure
long-dated funds marketed as “defensive”
ESG-labelled investments with complex downside profiles
When governance quietly breaks down
For many institutions, these gaps aren’t the result of poor intent or weak governance frameworks. They stem from processes and systems that were never designed for continuous oversight across private, illiquid portfolios.
What often fails first is not investment judgement, but the governance plumbing that supports it:
Risk classifications set early and rarely revisited
Assumptions embedded in models without ongoing validation
Limited visibility across portfolio-level exposures
Heavy reliance on spreadsheets and static committee papers
Decisions that are reasonable at the time, but hard to defend years later
By the time outcomes diverge from expectations, the question becomes less “What happened?” and more: “How did we govern this, and how can we demonstrate that today?”
The growing expectation: traceability, not hindsight
Pension trustees, LPs, regulators and courts are increasingly aligned on one point: investment outcomes matter… but process, documentation, and oversight matter just as much.
Modern governance expectations now extend beyond:
a valuation memo, or
an IC paper approved at a point in time.
They increasingly require:
traceable data inputs
clarity on how risk classifications were determined
evidence of periodic reassessment
consistency between portfolio construction, reporting, and oversight.
A quiet shift in how institutions operate
Across our work with institutional investors, we see a growing shift away from ad-hoc processes toward continuous portfolio governance, where data, assumptions, and decisions remain visible throughout the asset lifecycle, not just at entry.
This isn’t about adding friction or replacing human judgement. It’s about reducing blind spots.
Increasingly, institutions are adopting systems that centralise portfolio data, track assumptions over time, and link risk classifications directly to underlying exposures; creating a defensible audit trail without adding operational burden. This is precisely the problem PortF was built to address.
The Hermes case is unlikely to be the last of its kind. As private markets mature and scrutiny increases, the gap between storytelling and governance evidence will matter more than ever.
For long-term asset owners, the question is no longer just “Is this investment aligned with our objectives?” It’s increasingly “Can we clearly show how we governed it - over time, and under scrutiny?"
