Archive for the 'Impact Investing' Category

What are Africa’s pension funds investing into?

Do you agree or disagree with this view? Comments are welcome below

Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.

For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.

Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.

What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.

The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.

Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.

Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

What to invest in?

The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?

Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.

Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.

Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.

Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.

Private equity and infrastructure

The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.

table50313_pensions

International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.

Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.

Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?

For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.

South Africa’s PIC aims to invest $1bn into African private equity and development

South Africa’s Public Investment Corporation (PIC) has established 2 funds and plans to invest at least $1 billion into African investments outside South Africa, including R2.5bn ($213 million) in the current financial year to 31 March.

According to South Africa’s Finance Minister Nhlanhla Musa Nene, who is also Chairman of the PIC: “True to the GEPF mandate which requires that we commit 5% of assets under management (AuM) on the African continent, the PIC acted accordingly in the past year. That commitment stands. We have established 2 funds, namely: Africa Developmental Investments and Private Equity Africa, which will assist us to discharge our client-given mandate to invest on the rest of the continent. The commitment to invest in the rest of the continent is born out of a realization that our collective success is premised on economic integration.

South Africa's Finance Minister - Nhlanhla Muse Nene

South Africa’s Finance Minister – Nhlanhla Muse Nene

Acting CEO Matshepo More

Acting CEO Matshepo More

“More importantly, the African economic narration has been positively changing. Over the last decade, the continent’s economic output has tripled, while it is projected that Sub-Saharan Africa will grow at an average of 5% in the coming decade. This growth means that the continent will be the second fastest growing region in the world after Asia. For this reason, the PIC will, in the new financial year, also focus on developmental investments in Africa with a minimum commitment of $500m for developmental investments in Africa and a further $500m towards private equity in Africa. The African story presents the PIC with unique investment opportunities and we are fully aware that part of this strategy should be to grab opportunities in Africa and reap rewards in a manner that promotes inclusive growth and creates decent work for the people of Africa.”

Earlier PIC had established the Pan African Infrastructure Development Fund with a target size of $1bn and attracting $625m of investments in its first year, and set up Harith Fund Managers to manage it.

R1.6trn of assets
The total PIC AuM came to R1.6 trillion ($136bn) according to the annual report for the year to 31 Mar 2014, tabled in Parliament last October. Strong listed equity performance helped boost returns to well ahead of benchmarks (including consumer price index + 3%), and AuM were up from R1.4trn the year before and R1.19trn in Mar 2012 and around R83bn in 1994. Nearly 90% of its assets are from the Government Employees Pension Fund (GEPF), with the rest from the Unemployment Insurance Fund, the Compensation Commissioner Fund and other clients.

Asset allocation at 31 Mar 2014 (NB the annual report also gives contradictory figures on p71):
Asset class %
Local equity 49.11
Local bonds 32.42
Cash & money market 7.12
Properties 4.39
Offshore equity 3.64
Offshore bonds 1.72
Africa equity (ex-SA) 0.5
Isibaya 1.1

African investments
The unlisted investments portfolio is divided into developmental investments, private equity and properties. The annual report separates “Africa” from South Africa and the “Africa” developmental investments are focused on energy, transport and logistics, social and infrastructure, water and ICT; private equity to focus on “consumer-driven sectors, other sectors will be viewed opportunistically” and properties are retail, industrial and offices.

The African investment portfolio outside South Africa was valued at R7.9bn ($672m) at 31 Mar and the largest purchase during 2013/14 was $289m for a 1.5% stake in Nigerian listed cement firm Dangote Cement. The first African investment was a stake in Ecobank Transnational Incorporated Ltd.

Development impact
The PIC also has a strong commitment to investments in economic infrastructure, environmental sustainability, social infrastructure, priority sector (high labour intensive sectors), Small, Micro and Medium Enterprises (SMMEs) mostly in South Africa. According to the Minister: “During the 2013/14 financial year, R11.4bn worth of unlisted investments were approved, of which R4.8bn have already been disbursed. The impact on social returns was significant:
• In excess of 7,805 jobs (directly and indirectly) were created and 78,636 jobs were sustained
• 309 SMMEs have been funded and underwent entrepreneurship training
• The PIC is emerging as a leader in the development of green industries by directly and indirectly funding renewable energy projects that will generate in excess of 1,558 megawatts of electricity.”
The PIC is also supporting black asset managers through training as part of a BEE (black economic empowerment) incubator programme for South Africa’s asset management industry and has entrusted some R50bn of assets to 12 firms. It is also supporting transformation of stockbroking and said it paid 86% of brokerage fees to brokers that met Level 4 or better BEE as classified by the Department of Trade and Industry, and aims to pay 50% of all brokerage to Level 2 or better firms in the current year.

Acting CEO Ms Matshepo More (previously Chief Financial Officer, the previous CEO Elias Masilela resigned on 31 May 2014) said that “developmental” unlisted investments in the year came to R6.9bn and in the current year to Mar 2015 it will invest at least another R2bn in “social and economic infrastructure”.

Profit was R209m (up from R130m in 2013) and 1% of profit after tax is set aside for corporate social responsibility. It has a Corporate Governance and Proxy Voting Policy outlining its shareholder activism and is a signatory to the United Nations Global Compact and the United Nations Principles for Responsible Investing. One example was blocking takeover of listed pharmaceutical company Adcock Ingram by Chilean company CFR “to unlock value using local talent and also to preserve jobs”.

The PIC annual report was reported in South Africa’s Business Day in January and on South Africa Info in October 2014 and the last annual report can be obtained here.

Nigeria’s Abuja Commodity Exchange set for privatization

The Nigerian Government is planning to privatize the Abuja Securities and Commodities Exchange (www.abujacomex.com) by mid-2014, according to Arunma Oteh, Director General of Nigeria’s Securities and Exchange Commission (SEC). According to an interview on Bloomberg, the aim is to revive trading.
Oteh said: “The Government wants to privatize the only commodity exchange and it had committed to doing it by the end of last year. It didn’t meet that deadline, but it’s planning to do something by the middle of 2014.
“We have a number of both domestic players and international players who are very interested. They’d rather acquire the privatized exchange, so they’re trying to see how far the government is going with this initiative and if not they’re prepared to seek a registration for a new commodity exchange.”
One of the key investors interested is local firm Heirs Holdings Ltd, based in Lagos but with interests across Africa in banking, energy, real estate and agriculture. Chairman Tony Elumelu said in an interview in December the company wants to acquire the Abuja exchange when it is sold or else it will apply to the SEC to set one up.
Heirs Holdings is an investor with Berggruen Holdings and 50 Ventures in African Exchange Holdings Ltd (AFEX www.africaexchange.com). This facilitates an exchange using NASDAQ OMX technology which can be accessed anywhere in the world through the X-Stream electronic trading platform. Other key figures in AFEX include managing partner Jendayi Frazer, who was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009) and Nicholas Berggruen whose charitable trust funds the investment arm to take “a long-term, patient capital value-oriented approach”.
AFEX has set up the East African Exchange (EAX www.ea-africaexchange.com) in Kigali, with the first node launched in Jan 2013 and the first regional auction – 50 metric tons of maize at $398 per metric ton – between a Ugandan seller and Rwandan buyer in November 2013. Expansion is planned for Kenya and Uganda to build a regional exchange.
AFEX also set up an electronic warehouse receipt system in Nigeria last November, working with the Nigerian Grain Reserve Agency and the Agriculture Ministry. This links farmers and traders as part of the groundwork to set up a commodities exchange, according to Bloomberg.
According to AFEX website: “Warehouse storage is critical complementary infrastructure to any commodity exchange. Properly managed warehouse facilities allow farmers to safely store their harvest without worrying about loss of value until market prices are favorable. An electronic warehouse receipt (e-WR) is issued by the warehouse and represents the stored commodity and is the security instrument that is traded on the exchange. It is only transferable through the electronic system, avoiding issues such as side selling, theft, forgery, etc.
“Berggruen Holdings signed a Memorandum of Understanding establishing a strategic partnership with the East African Community (EAC) Secretariat to support the goals of regional economic and financial integration. With this strategic partnership, AFEX will seek to share its strengths, expertise, experience, technologies, methodologies, and resources in order to advance the goal of regional integration of capital markets.”
“Our vision is to create lasting institutions that will capitalize on Africa’s agricultural potential, support African farmers, achieve food security, provide energy security, and improve Africa’s overall global trade competitiveness.”
Nigeria has a fast-growing population which is already 170 million people. It produced Africa’s third-biggest cocoa harvest in 2013 and produces cotton, sugar and other crops.
The ASCE website says it was originally set up as a stock exchange in 1998 and started electronic trading in 2001 and was converted into a commodity exchange 3 months later and brought under the supervision of the Federal Ministry of Commerce. The website does not appear to have been updated recently.

More weather index insurance for African smallholder farmers

Weather insurance is a financial product aiming to help African farmers manage the volatility of drought and other weather crises. This week (14 Jan), IFC (www.ifc.org) signed 2 grant agreements with MicroEnsure Ltd to make more index-based weather insurance available to small-scale farmers in Rwanda and Zambia. Index-based insurance pays out on the basis of agreed weather data, such as rainfall as measured being lower than an agreed level, and is more efficient risk management tool than traditional indemnity-based agricultural insurance, which runs up high transaction costs and premiums.

The grants, valued together at about $650,000, aim to help mitigate the adverse effects of climate change and to strengthen food security. The funds come from the Global Index Insurance Facility (GIIF), which is a multi-donor trust fund implemented by IFC and the World Bank and funded by the European Union, Netherlands and Japan.

The GIIF grants are expected to help MicroEnsure to offer index-based insurance to an extra 90,000 small-scale farmers in Rwanda within 2 years and 15,000 small-scale farmers in Zambia within one year. Index-based insurance, which pays out benefits on the basis of weather data without costly field verification of losses, is a more efficient risk management tool.

Much of the farmland in Rwanda and Zambia, as in many other parts of Africa, is irrigated only by rain, and certain regions are vulnerable to drought from too little rain and floods and destruction from too much rain. To limit their losses due to extreme weather, smallholder farmers make minimal investments into their land, leading to reduced yields and continued food insecurity.

UK-based MicroEnsure has been operating since 2002 and works with mobile-network operators, banks, microfinance institutions, and other aggregators to provide insurance for the mass market. Shareholders include some of its managers and IFC, Omidyar Network and Opportunity International, which created MicroEnsure in 2005. It has a regional base in Nairobi and country operations across Africa and Asia. It has twice been awarded the Financial Times/IFC Sustainable Finance Award. The company has worked with local insurance companies in India, Malawi, the Philippines, Rwanda and Tanzania.

In Rwanda 90% of the labour force work in agriculture and in 2010 IFC agreed with MicroEnsure to design and provide index-based insurance and develop an outreach network to small farmers, while scaling up the insurance into a commercially viable and sustainable product. By March 2012, 6,208 maize and rice farmers were reported to be covered with weather station and satellite index products, with the aim to boost coverage to 24,000 farmers by December 2013. It works in Rwanda with Urwego Opportunity Bank which is a subsidiary of Opportunity International and local insurance companies Sonawara and Soros.

In Tanzania, MicroEnsure’s pilot project (Dec 2011-Apr 2012) worked to provide weather index insurance to 24,000 Tanzanian cotton farmers through the Tanzanian Cotton Board, supported by Gatsby Foundation, local underwriter Golden Crescent and a technical partnership agreement with reinsurer Swiss Re. It covers cover for value of inputs provided to farmers on credit.

IFC has also backed Kilimo Salama (“safe agriculture”) in Kenya to offer cover for inputs in the event of drought or excessive rainfall, in a partnership between Syngenta Foundation for Sustainable Agriculture and Kenyan insurance company UAP. Also available is cover for farm-output value, estimated on the expected harvest. A Nov 2010 grant from GIIF encouraged Syngenta to develop the product further, which uses weather stations to collect rainfall data and mobile SMS technology to distribute and administer payouts. It

For more information see IFC website on Rwanda and Tanzania and on Kenya.

Richard Leftley, CEO MicroEnsure and MicroEnsure Asia, said in an emailed press release: “As a pioneer in the provision of weather-index insurance to smallholders since 2004 we have seen the impact that these products have in unlocking credit to fund inputs, resulting in a dramatic increase in yields and rural income. Our on-going relationship with the team at IFC has been central to our growth in this sector.”

Gilles Galludec, IFC GIIF programme manager, said: “There is great potential for index insurance to strengthen economic security for smallholder farmers in Rwanda and Zambia while also serving to further the development of sustainable insurance markets in both countries. A reduction in weather-related risks also stimulates investment in farming by making it viable for financial institutions and agribusinesses to extend credit to smallholder farmers for long-term investment in the land. Index-based insurance is a powerful tool in the fight against poverty.”

GIIF is a multi-donor trust fund, launched in Africa in 2009, with the aim of expanding use of index insurance as a risk-management tool in agriculture, food security and disaster-risk reduction. It supports the development and growth of local markets for indexed/catastrophic insurance in developing countries, primarily in Sub-Saharan Africa, Latin America and the Caribbean, South Asia and Southeast Asia.

IFC is a member of the World Bank Group and focuses exclusively on the private sector, working with enterprises in more than 100 countries. Investments climbed to an all-time high of nearly $25 billion in the financial year 2013 www.ifc.org

The International Livestock Research Institute (www.ilri.org) is another organization backing index-based insurance, this time offering livestock cover for vulnerable pastoralists in Kenya and Ethiopia to cut climate-related risk. The product is called index-based livestock insurance and was launched in Marsabit District of Kenya in Jan 2010 with insurer UAP (it made payouts in Oct 2011 and Mar 2012) and in Ethiopia’s Borana zone in Jul 2012. For more information, see here. The product uses econometrics to measure links between livestock mortality and a Normalized Difference Vegetation Index (NDVI).

Innovative structure for $94m fund for health innovations

Merchant bank Lion’s Head is moving fast forward with the Global Health Investment Fund (www.ghif.com), which will invest in and advance late-stage drugs, vaccines and other global health technologies. The aim is to have substantial global impact in the poorest countries while gaining financial returns from sales of products in developed markets.
The innovative fund structure was put together by JP Morgan Chase with LHGP Asset Management (www.lhgp.com) as the investment manager. The Bill & Melinda Gates Foundation and the Swedish International Development Cooperation Agency have provided investors with a partial guarantee.
The fund has attracted commitments of $94 million by pioneering investors including
• 3 government entities: Grand Challenges Canada (funded by the Government of Canada), the German Ministry for Economic Cooperation and Development (acting through KfW) and the International Finance Corporation (IFC)
• 10 family Foundations led by the Children’s Investment Fund Foundation
• 3 strategic partners: GlaxoSmithkline, Merck and the Pfizer Foundation, who also support the fund via a scientific advisory committee
• 2 institutional funds: JPMorgan Chase and Storebrand
LHGP Asset Management will be responsible for originating, structuring and managing GHIF portfolio investments in collaboration with two independent committees – the Investment Committee and the Charitability Oversight Committee.
According to Hon. Christian Paradis, Canada’s Minister of International Development: “Innovation and investment in global health research and development are the way forward in tackling pressing health challenges and delivering meaningful results for those most in need around the world. This Fund is blazing the trail, and Canada is proud to have played a key role in its establishment.”

Top backing – Gates, Dimon and Jim Yong Kim
The fund was launched on 23 September. In the press release, it notes that private financing for global health research and development are key: “Philanthropy, government funding and pharmaceutical industry support have built a remarkable pipeline of global health innovations—with as many as 200 new products currently under development—but late-stage clinical trials are costly and development expenses are outpacing charitable support. “Traditional investment capital can play a meaningful role in solving this problem, particularly when it is supplied by investors who include the expected social impact of their activities in their return calculations.
Key supporters include Bill Gates, co-chair of the Bill & Melinda Gates Foundation, who says: “We invest in global health because we know that when health improves, life improves by every measure.”
Jim Yong Kim, President of the World Bank, adds his endorsement: “This innovative fund is mobilizing financing for medical advances that could potentially save millions of lives. It shows that we can align the needs of investors with the need for cures for diseases which cause so much suffering in developing countries.”Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co added: “The Global Health Investment Fund demonstrates the potential for innovative collaborations and thoughtful financial structures to mobilize new sources of capital for social challenges. This product brings a diverse group of investors together around the shared objective of developing life-saving technologies in a financially sustainable way.”

More to follow
Lion’s Head was established in 2008 and is a specialized merchant bank with offices in London and Nairobi. It is a leader in designing and implementing innovative financing for sustainable development. Services also include advisory and structuring, corporate finance and asset management.
The fund managers are Labeeb M. Abboud and Christopher Egerton-Warburton, who says: “GHIF joins the family of innovative financing mechanisms in global health. Although this is the first investment fund dedicated to global health R&D, we hope this will serve as a pilot for future funds of this type in global health and other sectors.”

Calvert Foundation says all investors set to include impact investments in portfolios

A major shift is coming in which all investors, individual and institutional, will commit at least a portion of their investable assets to social impact and investing in harmony with their values. Lisa Hall, President and CEO of Calvert Foundation (www.calvertfoundation.org), recently wrote in a blog post: “In 20 years we will look back and consider these past few years as the turning point in an economic movement”. She says she is seeing “a change in cultural norms and expectations”.
Investing for a return that is both financial and social, in other words impact investing, has gained popularity in the last few years, since about 8 years ago when it was still dubbed “community investing.” This remains a core part of socially responsible or sustainable investing, investing into organizations which help people to improve their lives through affordable housing, jobs, community services such as daycare and healthcare, and more, not into publicly-traded companies.
For example, Calvert Foundation offers impact investments so everyone from individual investors in increments of $20 to large corporations in as much as $20 million can invest in low-income communities and provide capital where there is none. The Community Investment Note (CI Note) pays a return of up to 2% to investors and directs capital to help finance affordable housing, charter schools, health centres, Fair Trade coffee co-ops, and job creation. She says: “These investments in the future of our country and our world are helping to transform the lives of individuals and families.”
The mood is changing in how investors think about risk, return and rewards. Calvert Foundation recently commissioned a study involving 1,065 financial advisors: 72% said they had interest in offering products that provide sustainable investment to their clients, while 38% expressed strong interest in being able to offer those products now. The advisers surveyed indicated that they were willing to recommend impact investments to one-third of their clients, dedicating 10%-20% of their portfolios to this type of investing. Based on these numbers, the study estimates a sustainable investment market of about 2.5% of advisers’ assets under management, or $650 billion. “The change that these dollars can make is both monumental and within the scope of our imagination, our expectations and our ability.”
Calvert works with financial advisors and multiple brokerage firms so investors can include the CI Note in their investment portfolios. Microplace (www.microplace.com), an eBay company started in 2007, helps investors purchase Notes online from as little as $20. Hall says: “We are also developing strategies to bring new investors into the fold. For example, we want to engage the millennial generation through partnerships with colleges and universities, social media outlets and networking events. We are also embarking on efforts to connect diaspora communities and enable individuals to invest in their countries of origin. Other special initiatives that we envision for the future include regional initiatives.”

Business – Starbucks backs jobs
The business community is also getting more interested and large corporations are beginning to understand the power of uniting investment and social conscience. Starbucks Foundation in US has teamed up with the Opportunity Finance Network (OFN) to help create and sustain jobs with a $5m seed investment into Create Jobs for USA programme provides capital grants to select Community Development Financial Institutions (CDFIs), including Calvert Foundation, which provide loans to under-served community businesses. The goal of Create Jobs for USA is to bring people and communities together to create and sustain jobs throughout America.

“Food to my soul”
An investor may see impact investing as just a part of the portfolio until she or he understands the social impact. Marta Santiago, a New Mexico resident and CI Note holder since 2005 said: “Calvert Foundation offered me a great opportunity to give food to my soul when it came to switching from Wall Street to an organization that is entirely devoted to helping the community, especially the needy, in a varied, fruitful, and meaningful manner.”
As US government grants for non-profits gets shut down, they turn to impact investors so they have funds to continue providing critical services. The Nonprofits Assistance Fund (NAF), a Calvert Foundation borrower, stepped in to offer emergency bridge loans, providing credit to cover cash flow delays for groups such as the Northern Lights Community School of Warba, Minnesota, a well-managed and incredibly successful school catering to students who have faced difficulties in traditional public school settings. Since 1980, NAF has provided over $75m in loans to more than 1,700 non-profits.
Calvert Foundation’s partner The Paradigm Project, also accessible to investors through our CI Note, invests in clean-burning stoves that reduce wood consumption and toxic smoke, saving village women in northern Kenya long and often treacherous journeys to collect wood. Although the stove is a solution to just one problem, it is part of restoring dignity to women for whom mercy has been in short supply.
Hall is President and CEO of Calvert Foundation. She has more than doubled the portfolio she managed from $76m to $190m while keeping losses under 1.2% during one of the most economically challenging periods in recent history. Follow Lisa on Twitter @LisaGreenHall

Jacana merges with InReturn Capital, launches $75m private equity fund for SMEs

Entrepreneurs running small and medium-enterprises (SMEs) in West and East Africa stand to benefit from a new $75 million private equity fund. The announcement follows the news on 29 Jan that two long-term partners are merging.
InReturn Capital (www.inreturncapital.com) is a private-equity company based in Nairobi (Kenya) that invests in SMEs across East Africa, and it plans to close a legal merger in the first quarter of 2013 with London (UK)-based Jacana Partners (www.jacanapartners.com), a private equity specialist in SME investments, which has been building capacity in private equity managers in Africa.
The new partnership will offer a significant boost for East African entrepreneurs seeking value-add expertise and growth capital. InReturn was investing in transaction size of $0.5m-$1.3m and the partnership with Jacana will mean increased access to private equity investment, dedicated investment teams on-the-ground coupled with international private equity expertise and larger deal sizes of between $1m-$5m.
InReturn has rebranded as Jacana Partners. The two firms have been working together for 3 years. Jacana’s West African operations (previously Fidelity Capital Partners) rebranded in August 2012. This creates a leading pan-African SME private equity firm with pan-African coverage which will manage the new $75m SME fund expected to close later this year.
Jacana currently operates in 6 markets (Ghana, Kenya, Liberia, Sierra Leone, Tanzania and Uganda) and intends to move into 2 new countries with the new fund, possibly Ethiopia, Nigeria and/or Francophone West Africa. It is the only pan-African private equity company with a permanent commitment to the SME sector.
Jacana has invested over $20m to date in 20 portfolio companies employing over 1,300 people. In East Africa, 5 investments have been made to date in a stone quarry, an eye care centre, a supplier of tarpaulins to the relief sector, a serviced office provider and a logistics company and several other transactions are contemplated in the next few months.
Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya commented in a Jacana press release: “East Africa is undergoing a period of rapid economic growth largely fuelled by the expansion of our small-to-medium sized enterprises – key generators of job creation and GDP growth. The merger being rolled out today brings scale to the financing of SMEs which will boost their contribution to East Africa’s economic growth. It is my expectation that we shall see more similar initiatives to scale up financing to SMEs that lie at the heart of development blueprints for governments in the region.’’

Passionate about Africa’s entrepreneurs

Getting closer: Ezra Musoke (left) and Anthony Gichini (right) of InReturn Capital flank Simon Merchant CEO of Jacana Partners.


Anthony Gichini, Partner at InReturn Capital said: “The merger of InReturn Capital with Jacana Partners represents a big step forward in private equity investment for SMEs in East Africa. Jacana’s unique model combines international private equity experts with highly-experienced local teams, meaning our entrepreneurs benefit from strategic advice from international business experts as well as dedicated African investment managers on-the-ground who can add-value and provide hands-on management support. This combination is our winning formula which helps us build strong businesses and deliver superior returns.”
Simon Merchant, CEO of Jacana says: “Jacana Partners is a pan-African private equity firm that invests in entrepreneurs, builds successful SMEs and delivers sustainable financial and social returns. We do this because we are passionate about entrepreneurs as the key drivers of job creation and long-term economic development in Africa. Jacana is uniquely structured to overcome the challenges of private equity investing in SMEs in Sub-Saharan Africa. Combining internationally experienced private equity veterans with highly skilled teams on-the-ground, Jacana has the experience, knowledge and resources to structure great deals, grow sustainable businesses and deliver superior returns.
“By merging our African and European operations, we are consolidating our business into a single fund manager, operating under the Jacana brand. As well as investing the remaining capital from our existing funds, the new Jacana will deploy a new $75m SME fund that we are currently in the processing of raising from international investors.
“The new fund will allow us to significantly increase the scale and geographic reach of our operations and will be invested in SMEs in up to 8 countries in East and West Africa. We firmly believe that a unified Jacana operating under the unique Jacana identity is the optimal platform upon which we can fulfill our mission of building the best SME private equity team in Africa, creating sustainable jobs and supporting long-term economic growth.”

Social Stock Exchange to launch in London

A London-based Social Stock Exchange (SSE) aims for launch in the second quarter of 2013. It plans to partner with a Recognised Investment Exchange to create an investment exchange authorised and regulated by the Financial Services Authority (FSA) for trading in securities of social enterprises and other social purpose businesses. The SSE team are building the trading platform, the pipeline of companies who wish to list, the market-maker and broker communities, and the community of impact investors and have offices in central London, UK.

The goal is to build a securities exchange that lists social businesses from around the world and attracts capital from individuals, private clients, family offices, foundations and institutional investors who are seeking both a financial and demonstrable social return. The target is to become the premier trading venue for social businesses wishing to raise risk capital and for social impact investors who wish to find global businesses that reflect their values.

The team brings together stock-exchange professionals, investment bankers and asset managers. Its offices are based in London Bridge, London UK. The exchange will be open to a wide range of retail investors, including tax-efficient schemes and personal pensions.

Target sectors for listings are smaller high-growth health, educational and environmental companies and also enterprises seeking to finance social and affordable housing, social transport, green and ethical consumerism, clean-tech, green-tech, waste, water, recycling, regeneration, education, public health, sustainable forestry and organic agriculture. It will also help enterprises that work with large numbers of poor (“base of the pyramid”) to help them build economic activity. It is firming up commitments from companies to list and from investment banks to work in partnership and as advisors.

Co-founder and CEO Pradeep Jethi told African Capital Markets News: “Many of the larger City brokers and law firms are working with us, as are social-impact auditors from the ‘big four’ down to smaller niche organisations.”

The SSE aims to become a deal-aggregation platform with global visibility aimed at impact investors across private wealth managers, family offices, foundations and institutions. Ordinary investors will also be able to pick and invest in SSE-listed social ventures, using traditional stock-broking services. Jethi explained: “The main advantage is that the social enterprise’s shareholder base becomes dominated by impact investors who share the mission of the company as well as its growth and financial prospects. By having an aggregated trading venue of social enterprises with common and high standards of regulation, governance and social reporting, this lowers the cost of search and cost of due diligence for investors and therefore provides the advantage of ultimately lowering the cost of capital for a social enterprise.”

The Social Stock Exchange was initially funded by the Rockefeller Foundation as part of their programme to develop global impact investing infrastructure, which also includes the Global Impact Investing Network (GIIN), BLabs/BCorporations, the IRIS impact metrics taxonomy, and GIIRS (the Global Impact Assessment Ratings System). Partners such as international banks and foundations, including J.P.Morgan, Prudential, Deutsche Bank, Triodos Bank, UBS, Calouste Gulbenkian Foundation, Doen Foundation, Ford Foundation and W.K. Kellogg Foundation, are committed to promote impact investing and have contributed research or direct interventions to stimulate the impact investing marketplace.

The SSE company was registered in 2007 and the earliest work commenced with nef (New Economics Foundation), Community Action Network and Office of the Third Sector (now Office of Civil Society).

It raised £250,000/$500,000 from the Rockefeller Foundation; completed extensive market scoping and testing work in 2008, and did research which showed that social enterprises and social investors were positive to the SSE concept. It continued to build support and networks until 2012 when it raised £2m in a second round of funding from a syndicate of strategic investors to provide the working capital to build, market and launch the exchange and to cover up to 6 years of operating costs.

Impact Exchange (iX) gets closer to launch on Stock Exchange of Mauritius

A partnership between the innovative Stock Exchange of Mauritius and social enterprise Nexii is making great progress towards setting up the Impact Exchange (iX) board on a globally recognized stock exchange. This will enable businesses that have social impact to list debt and equity securities, as allow impact investment funds to list. According to a report on Forbes.com, so far 6 companies have gone through the iX board listing process and the board expects to start trading in the third quarter of 2013.
SEM is a member of the World Federation of Exchanges and one of platforms for trading debt, equity and derivatives, and it can also trade and settle in many currencies, including USD, GBP, Euro, Mauritian Rupee. SEM is regulated by the world-class Financial Services Commission of Mauritius and has automated trading and settlement services. It is a recognised stock exchange by Her Majesty’s Revenue and Customs in the UK, and an approved stock exchange by the Cayman Islands Monetary Authority. SEM’s data is live on all major international data vendors – including Bloomberg, Thompson Reuters, Financial Times, Factset and I-Net Bridge – provided significant global access for listed companies and investors alike.
Nexii was created by Tamzin Ractliffe, a South African pioneer in impact investing marketplaces. The new marketplace is aimed at the retail market, so that any investor will be able to buy and sell shares not just qualified specialist investors. Ractliffe initially set up a platform for unlisted securities 12 years ago. In 2009, she worked with the Rockefeller Foundation to bring together a group of social entrepreneurs/impact investors interested in creating social stock exchanges and marketplaces. She spent 18 months researching the market and, in May, 2011, she received formal regulatory approval from the FSC to launch the iX.
For all of the 6 companies that will launch the iX, this will be their first listing. Forbes.com correspondent Anne Field quotes Ractliffe: “Going to the market for money is not something they’re used to. The process of encouraging companies and getting them to understand the value of being part of a marketplace – that’s been quite a lot of work.” To be eligible for listing, companies need a clear social or environmental mission and need to have in place a reporting system for non-financial impact. The also need to work with intermediaries, known as Authorized Impact Representatives (AIRs), who are accredited to NeXii. Nominated Impact Advisors help the social enterprise during the listing process. Once the company is listed, Impact Verification Agents work with the business to make sure it meets ongoing reporting requirements and audits impact reports. Ractliffe says she’s accredited a handful of impact advisory firms so far.
The process can be costly and Ractliffe says she is discussing creating a technical assistance advisory fund that would help finance the cost of the listing process with “a number of development financing institutions”. This fund would also have a financial and impact return.
The new stock exchange was launched in May 2011 at the first Social Capital Markets (SOCAP) Europe Conference at the Beurs van Berlage in Amsterdam – the site of the creation of the capital markets where the first stock was traded in 1602.
According to the NeXii website: “We believe that this board is a powerful tool for facilitating the flow of investment capital to social businesses. The iX represents the next generation of stock exchanges and how these established financial institutions can help transform the capital raising opportunities available to social businesses. The iX provides mission protection for listed social businesses. This means that your reputation as a social business is maintained even though you are issuing public securities. The iX is fully committed to all stakeholders in the impact capital market and it is an effective platform to coordinate information, build intermediary activity and enable analyst coverage of impact investments. The iX is how we connect social businesses to public capital and mainstream investors to change.”

Uganda’s power distributor Umeme says it plans Nairobi and Uganda IPOs this year

Uganda’s only power distributor, Umeme, said it plans to raise capital to invest in Uganda’s electricity sector through an initial public offering (IPO) on the Ugandan and Nairobi securities exchanges later in 2012. Umeme is a distribution company and is 100% owned by private equity firm Actis, according to this report on Reuters.
The news came on 6 July at the switching of 5 turbines to add 50MW to the power grid as part of the $860 million Bujagali 250MW hydropower project, one of Africa’s largest power schemes. Umeme has a 20-year electricity distribution concession. Managing director Charles Chapman says the company has opted for the IPO as electricity is now available – Uganda had been suffering power cuts before Bujagali capacity was added – and there was agreement on regulatory targets.
The company would not say how much it hopes to raise and has not finalized plans for the IPO, but Reuters suggests it could be 20% of the shares. The report quotes Chapman: “The initial public offering (IPO) will support Umeme’s capital raising initiatives to finance the continued development of the electricity distribution network, including projects such as prepayment metering and energy loss reduction. We believe that Umeme will be stronger, more transparent and accountable with the input of our customers and employees as shareholders.”
He adds that customers are up to about 460,000 in 2011 from 354,839 in 2009. After power sector unbundling, power in Uganda is generated by the Uganda Electricity Generation Company and transmitted to Umeme by the Uganda Electricity Transmission Company.
According to this blog story, Umeme has already put in its application to the Capital Markets Authority in Uganda and has appointed Stanbic Bank (Uganda) as Transaction Advisor and African Alliance (Uganda) as Sponsoring Broker. Writer Angelo Izama comments: “The company is a safe investment given its monopoly and demand from customers. Many who worry about the risks it faces will look to political risk something to which we will return. Suffice to say that a great degree of the risk will likely be offset when the company lists given the divesting of its ownership to locals.”