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TBLI CONFERENCE™ EUROPE 2012 - Zurich - Switzerland


  • 1. TBL2: Maximizing TBL Investment ImpactTBLI Europe Conference November 2012

2. TBL2: Triple Bottom Line Leveraged for Impact Whether a local coffee shop or a global bank, TBL businesses are criticalto creating a more sustainable world We believe TBL principles can be prudently leveraged to catalyze hugepositive impactswe call this TBL2 We seek to geometrically increase TBL impacts by unlocking the hugepotential of local currency financing for emerging nations Over $5 Trillion USD is available for development finance in emergingnation local savings pools (pension funds and other financial institutioninvestment funds); most is under-invested; little is being used to financephysical, economic or social infrastructure Unlocking this potential has important implications for the ability ofdeveloping nations to self-finance particularly significant now whenmany developed nations are facing fiscal crises and foreign currency flowsinto emerging nations are at risk 2 3. Virtuous Circle of Long-term Savings Pools of long-term savings fromInvestment pension funds, insurance companies, banks and mutual funds - can play a critical role in national development Pension fund assets in OECD countries alone amount to over US$19 Trillion1 These assets are invested in a variety of instruments including: Fixed Income: Govt. & Pvt. Sector BondsSavings Returns Equities: Listed Equities, Private Placements Social Other: Real Estate, Cash Envl Economic Investments not only provide returns to savers, but also fund long-term Macroeconomic Stability development of roads, utilities, hospitals, schools, etc. 13 Source: OECD. (July 2011) Pension Markets in Focus. No. 8 4. Evolution of the Virtuous Circle in Developing Countries Developing countries, helped by DFIInvestment partners, have catalyzed substantial local savings pools Pension funds and other institutionalinvestors in developing countries nowcontrol US$5 Trillion in assets This is not restricted to larger countries For example, Ghanas pension fund hasUS$1.6 BN in assets with growth at 20% p.a. But theres often no good place to invest the assets productivelySavings Returns Egypt has over US$75 BN in pension assets Socialbut $1BN in annual bond market issuance Envl Regulators, with good reason, want safety Economic So the bulk is invested in bank CDs and T-bills In practice, otherwise prudent Macroeconomic Stability investment regulations often result in high concentrations in low-yield assets with no development impact4 5. Finding the Best Investments for These AssetsAvailableSavings Institutional InvestorsPrivate Sector BondsOtherGovtInv. AssetBank T-BillsLocalClass Infra- EquityRealCDs &Blue Foreign Bondsstructure EstateChipsYield Low LowMod. Mod. NoneVariableLowRiskLow Low Low Mod. HighHighLowDev. Impact LowLow/Mod.Low/Mod. High Low/Mod. Low None WANTED: AAA-Rated Projects: If development finance projects for infrastructure and public services could be structured to reduce risk and receive high credit ratings, these local assets could become a dramatically effective tool for development, while earning safe but 5 higher returns for local savers 6. One TBL2 Solution: AMF AMF is a TBL corporation formed to provide AAA (national rating scale)guarantees for local currency bonds and bank loans funding essentialphysical, social and economic infrastructure in developing countries Physical: Roads, Airports, Housing, Ports, Renewables, Utilities Social: Health Care, Education Economic: MSMEs, Microfinance, Local Bank Financing, Commodity Exports AMF won first-prize honors in March 2010 at the Marketplace inInnovative Finance, sponsored by the World Bank, the Bill & MelindaGates Foundation and Agence Franaise de Dveloppement AMF is an extension of the experience of prior monoline guarantors inthe emerging marketswhile never a large proportion of their portfolios,emerging nations accounted for US$30 billion in exposure and were theindustrys most profitable line of business, with near-zero losses AMF expects that two private sector and six public sector investors will bejoined by additional private sector parties to launch AMF by early 2013.We came to this conference in search of one or more of those investors!6 7. TBL2: Adding Leverage to Move the Needle Annual Financing Catalyzed by AMF 20Principal Insured (US$ BN) The Gates Foundations 15 Annual Giving in 20092 105 US$ 3 BN02013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year AMF expects to earn investors a handsome 25% return on equity, creatinga sustainable business and enabling an impressive developmental impact Each dollar of capital can catalyze 20 dollars in financing On an initial estimated capital base of US$350MM, AMF estimates that by2017 it will catalyze more development financing than the 2009 giving ofthe Bill and Melinda Gates Foundation 2 7 Source: Foundation Center. (2011). Foundation Growth and Giving Estimates: Current Outlook. 8. How and Why AMF Works: An Example Assume a Kenyan university seeks $25MM to expand its medical school The university is locally rated AA; $25MM of new debt would make it A-,which the local bond market will not finance due to regulatory impediments If a 20-yr A- bond could be issued, the additional interest on a bond of suchmaturity would exceed interest on an equivalent AAA bond by some $12 MM AMF structures covenants and reserves with environmental and social goalsin mind, then uses its local AAA rating to guarantee the $25MM bond issue Of the $12MM savings, AMF gets $7MM as its bond insurance fee; theuniversity saves $5MM Kenyan pension funds buy the bonds The medical school is financed at a low fixed rate; AMF has a profitabletransaction with a strong development impact; Kenya has 100% financed itsdevelopment needs with local fundsThis example demonstrates the cost savings, debt market access and developmental benefits of financial guarantee insurance. Its basicprinciples can be applied across all of AMFs asset classes8 9. Mitigating Risk and Maintaining Financial StrengthAs with all enterprises, AMFs business model is not risk-free. However, much of the riskhas been mitigated, as shown below: AMF will always be the most senior creditor in the transactions it guarantees We will strictly adhere to essentiality as our core principle by guaranteeing infra- Underwritingstructure and services projects that provide a nation or region an essential benefit Our exposures will be rigorously diversified by geography, asset class, and issuer We will never engage in esoteric derivative structures Loss AMF will reserve 25% of its earnings, which is 3-7x the level of US monolines Mitigation We will reinsure with our shareholders to manage risk exposure levels 80-90% of AMFs liabilities will be a mix of emerging market currenciesForeign AMF will diversify, diversify, diversify: A mixture of hard currency bonds on the asset Currency Risk side, a mixture of emerging market currency exposures (most of which will be notional Management rather than realized exposures) on the liability side Credit will be pre-eminent in the culture of the Company Corporate Risk management will take precedence over revenue productionCulture Compensation will be aligned with long-term risks inherent in business9 10. AMFs Path to Launch AMF has achieved several critical milestones since its founding, including: Hiring a multinational/multilingual team of veteran credit professionals withaverage credit/emerging markets experience of 26/24 years, respectively; Securing indicative capital commitments from private and public investors,including two private sector companies and six DFIs, for ca. $275 million; Raising $400,000 from senior management and staff; Winning a grant from the Bill & Melinda Gates Foundation for $300,000; and Initiating a rating discussion with S&P and securing an A+ global scale ratingfrom Global Credit Ratings of Johannesburg, South Africa AMF is now working with the New York investment banking firm KeefeBruyette and Woods to recruit an additional private sector investors, aprocess which we expect will be completed in the coming months Once investor recruitment is completed, AMF will apply for an indicativeA+ rating from S&P. This is estimated to take 2 to 3 months AMFs launch will occur shortly after receiving its rating in Q1 2013 10 11. The Benefits on a TBL2 Investment An AMF investment will provide investors with returns on all three criticallevels while moving the needle in development finance Economic: AMF projects an IRR of ~25% Environmental: AMF will adhere to strict environmental policies of the DFIsand directly induce investment in green technologies Social: AMF will catalyze financing for essential public infrastructureinvestment with strong social benefits Impact: AMF will have dramatic, substantial and global impact In addition, investors will join a unique public-private partnership with awindow on the fastest-growing economies around the world The minimum investment is $5-10MM and of course much larger sizes arealso welcome Interested in learning more? Please come see us at our boothThank you!11 12. ContactDavid StevensFounder and CEOMobile: +1-917-496-9929Email: david.stevens@amfguarantee.comWebsite: www.amfguarantee.com12