Impact Capital Partner’s Overview
FOR INSTITUTIONAL INVESTORS ONLY – This is a female-founded Fund Manager who seeks to generate competitive financial returns PLUS positive economic, social and/or environmental impact by providing financing to Small and Medium Enterprises (“SMEs”) in very select high-growth developing economies with stable political climates and reliable legal systems.
Transaction Details*
Why? – The Importance of SMEs
SMEs play a major role in the world economy, particularly in developing economies, where micro-enterprises and small-scale enterprises account for the majority of firms and a large share of employment and, accordingly, are believed to be the “engines” of job growth.
The Problem – Access to affordable capital
SMEs are at a natural disadvantage to larger firms in accessing debt finance, due to various factors such as:
- asymmetric information
- higher transaction costs
- under-collateralization
- limited credit history
- and/or lack of skills to produce sophisticated financial statements
Additionally, in many developing countries, the global economic and financial crisis in 2007-2008 exacerbated the financial constraints experienced by SMEs.
The Opportunity – A compelling supply-demand mismatch
The Manger believes the underserved nature of such a large segment of the global economy, coupled with a strong demand for capital from the SMEs themselves, has created significant opportunity for investment. Because of the current investing environment, they believe that SMEs can offer attractive investment terms in the form of…
- current cash yield
- deferred interest and equity warrants
- Plus more attractive security features in the form of loan covenants and quality collateral.
- Additionally, as compared to larger companies, SMEs often have simpler capital structures and carry less debt, thus aiding the structuring and negotiation process and allowing for greater flexibility in structuring favorable transactions.
The Approach – Boots-on-the-Ground Investment Partner Model
The Manager’s unique boots-on-the-ground Investment Partner model is the primary differentiator, providing investors with…
- lower risk access to the private investment opportunities available in developing economies
- boots-on-the-ground to mitigate idiosyncratic local market risk
- “double” underwriting to ensure adherence to risk standards and specific client mandates
- emerging market exposure without the volatility of public markets
- comprehensive diversification such that no single macro-economic factor significantly affects the portfolio
The Fund Manger believes the investment opportunity to provide growth-stage financing to SMEs is significant, and with their Investment Partner model, the ability to scale is equally significant. They currently utilize 12 Investment Partners but they have the ability to add partners as opportunities arise in other countries and/or regions. In accordance with a risk management philosophy which emphasizes a comprehensive approach to investing and asset management, Investment Partners’ strategies are tailored to the characteristics of private financing of SMEs in developing economies. This strategy brings the benefits and diversification of a fund-of-funds, but, with greater ongoing oversight, customized investments and without the additional layer of fees.
Impact Performance Goals
100% of their loans and/or invested companies meet top-down Environmental, Social & Governance (ESG) screens and key benchmarks, including…
- Aligned with the UN’s Sustainable Development Goals
- Conform to the IFC Exclusion List
- Meet local and international laws and respective practices
- In compliance with local environmental, labor, health, safety and business laws
- Represent in writing their company’s ongoing commitment to ESG practices
- Environmental practices such as: energy savings, waste reduction and water conservation
- Social policies for fair hiring, compensation, maternity leave, community service and corporate donations
Plus, 100% of their borrowers commit to identify and track various bottom-up impact metrics, as defined by the GIIN’s Impact Reporting and Investment Standards (IRIS) metrics that all track to at least one of the United Nations Sustainable Development Goals (UN SDGs)
UN Sustainable Development Goals
As of 9/30/20, this manager’s borrower companies have historically mapped to 14 of the 17 SDGs, including:
- SDG 1: No Poverty
- SDG 2: Zero Hunger
- SDG 3: Good Health & Well-Being
- SDG 4: Quality Education
- SDG 5: Gender Equality
- SDG 7: Affordable & Clean Energy
- SDG 8: Decent Work & Economic Growth
- SDG 9: Industry, Innovation & Infrastructure
- SDG 10: Reduced Inequalities
- SDG 11: Sustainable City & Communities
- SDG 12: Responsible Consumption & Production
- SDG 14: Life Below Water
- SDG 15: Life on Land
- SDG 17: Partnerships
The Track Record
Since launching their strategy in June 2013, and as of 9/30/20*, they have…
- deployed over $1.38B in private debt (including trade finance & term loans)
- In 4 regions around the globe
- in 37 developing economies
- to 96 SMEs
- supporting 42,228 permanent jobs
- with zero default losses
Additional Resources
- Manager Name & Website – Upon Request
- Pitch Deck – Upon Request
- Term Sheet – Upon Request
- Full Access to Data Room – Upon Request
- 2019 Sustainability & Impact Report – Upon Request
- Manager’s Network of Boots-On-The-Ground Investment Partners – Upon Request
