avpn webinar - structured funds - innpact
DESCRIPTION
AVPN member INNPACT, a specialized advisor and project manager has set up 15+ structured impact funds for DFIs, Foundations, pension funds and private investors for a total value of $3 bn and would like to share its experience gained over the last 7 years.Learn key facts regarding structured impact funds, from the design to the implementation phase!TRANSCRIPT
avpn.asia
AVPN Webinar
24 February 2015
How to set up an
impact finance fund of
US$100 million?
Arnaud Gillin-Innpact
Innpact Sàrl | 5, rue Jean Bertels · 1230 Luxembourg | www.innpact.com
How to set up an impact finance fund of $100mn and more from donors, foundations, pension funds, DFIs and HNWIs? Structured impact investment vehicles provide for increased efficiency and greater impact.
AVPN Webinar
February 24, 2015
Arnaud Gillin, Partner
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
3
Huge potential for Impact finance funds in Asia but…
20% of investments are located in Asia (excl central Asia)
4% of impact investors are based in Asia
4-6 new funds created per year focusing only on Asia
Sources: JP Morgan GIIN survey dated May 2014 and Innpact internal database
60% of funds investing only in Asia with AUM < $100mn
30% of impact investors plan to investments in Asia
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Challenges for new impact finance funds
Lack clear & adequate investment strategy
Lack of investment ready deals and intermediaries
High risk for mid to low return
Transaction costs and quest for scale
Different investors with different needs
Investment or philanthropy
4
Fund structure
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Different Investors – Different needs
5
DFIs
Donors
Foundations
Private
Institutional
Investors
Liquidity - Exit
Volumes
Low Risk
Clear mission
Minimum size
Role in Governance
Return for risk
High Impact
Leverage of funds
Patient capital
Risk for innovation
Impact and return
Potential upside
Min. protection
Impact
Investors
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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3 Examples of structured funds
Debt and
Grant TA
African Agri.
value chain to
benefit the poor
USD 108m USD 37m private
Senior
Debt
Large MFIs
with high
liquidity needs
USD 600m USD 135m private
Debt and
Business Support
Small and growing
businesses in
Africa
KfW &
Shell Foundation
2009
2011
2014
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Notes
Senior
A Shares
Mezzanine
B Shares
Junior
C Shares
Institutionals, HNWIs, SRIs
DFIs, Fund managers
Foundations, Donors,
Venture Phil. Coop. agencies
Investors
Typical Structure design – Structure
7
Assets
Investees
Investee 1
Investee 2
Investee 6
Investee 3
Investee 5
Investee 4
Income / expenses
INCOME WATERFALL
Gains / losses
CAPITAL WATERFALL
Technical
Assistance
Foundations, Donors,
Coop. agencies
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Typical Structure design – Waterfalls
8
Income from Portfolio less
Operating & Financing expenses
Net Income
A Shares Target Dividend
B Shares Target Dividend
C Shares Target Dividend
Investment Manager Perf fee
Complementary Dividends A, B, C
INCOME WATERFALL
Capital Losses
C Shares
B Shares
A Shares
CAPITAL WATERFALL
Defaults, Write-offs, FX
losses
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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N Debt
A
Senior
B
Mezzanine
Notes
Second Loss Capital
First Loss Capital
Senior Capital
C
Junior
Protection I Return
*** **
****
*** **
*
*
Class C plays a critical role: Sustainability of vehicle
Efficient use of donor money
Take initial credit and local currency risk
Development oriented
Notes reduce cost of capital: Low risk and associated low cost
Creates wider participation in impact
Redeemable capital: Reduced level of risk
Lower cost than pure equity
Allows for DFI funding
Different risk-return profiles play different roles
TA essential to increase: Efficiency of investees’ activities
Market maturity
Impact
(Earmarked)
grants Technical Assistance
Roles
Each tranche is designed with its own tenor, risk, return, voting right
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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Other examples of structured impact funds
MiGroF
CFF - SE
PEAK II
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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Why a structured fund approach ?
ADVANTAGES
Long term investment
strategy and support
Larger scale and more
efficient funding
PPP cooperation platform
Flexibility to accommodate
investors requests
Protection for private
investors
Perfect structure for
innovative strategies
High impact for Donors
CHALLENGES
Coordination
Complexity
Ramp-up period
Critical size
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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Success factors in designing an impact finance fund
MARKET Clear understanding of market needs
Clear definition of fund’s mission, scope and objectives
Clear business case
STRUCTURE
3 Appropriate choice of legal form
Adequate capital structure
Effective organisational structure
Choice of investment committee and other partners
Independent control mechanisms
IMPACT Appropriate definition of impact and reporting indicators
Incentive scheme focusing on financial and impact objectives
1
2
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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Why don’t you ?
ADVANTAGES
Long term
Larger scale
PPP
Flexibility
Protection
High impact
Role for VP
Setup costs grant
First Loss Capital
Technical
Assistance grant
Investment
endowment in
senior tranche
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Our Clients and their Funds
14
Microfinance / SME
Renewable Energy/ Energy Efficiency
Impact Finance / Agriculture / Other
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Innpact at a glance
15
9
Manage-ment
Support Mandates
Vision
A world where social and environmental initiatives are sustainable
Founded in
2007
Mission
Foster sustainable impact finance initiatives by providing innovative advisory, consulting
and management support services
7 Director-
ships
14
Investment
structures
established
25+
Impact
Finance
projects
17
persons
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
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Arnaud Gillin - Partner
T : +352 27 02 93 73
M : +352 621 37 64 73
Patrick Goodman - Partner
T : +352 27 02 93 55
M : +352 621 49 77 49
Corinne Molitor - Business Development Consultant
M: +66 (0)8-6406 0424, Bangkok, Thailand
Innpact
5 rue Jean Bertels
L-1230 Luxembourg
Tel + 352 27 02 93 1
www.innpact.com
Contact us
INNPACT Webinar on structured impact investment vehicles © Innpact 2015
Typical Structure design – Governance & Financing
17
Impact Investment
Vehicle
Board of Directors
General Share-
holders Meeting
Evaluation & Monitoring
Investment Decisions
Shareholders Noteholders
Shares
Investment
Manager/Advisor
General
Secretary
Investment
Committee
Equity
Participations Loans Guarantees
Final Beneficiaries (SEs, MSMEs)
Service
providers
Direct Investees (PLIs)
TECHNICAL
ASSISTANCE FACILITY
DONORS
TA FACILITY
COMMITTEE
Investors
Technical Assistance
Notes
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