Emerging Market Private Debt

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.

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
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Transaction Details*

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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

Emerging Market Trade Finance

Impact Capital Partner’s Overview

FOR INSTITUTIONAL INVESTORS ONLY – This Fund manager is focused on facilitating trade finance by making short term private loans to private growth stage companies who are committed to responsible, sustainable management of their companies and to creating positive, measurable impact in their communities. The manager’s objectives are to provide current income, capital preservation and modest capital appreciation primarily through providing trade finance facilities to established, growth stage, middle market enterprises through a global network of institutional class investment partners in carefully selected developing economies where access to affordable capital is significantly limited. The shortage of capital helps create meaningful opportunity to generate competitive risk-adjusted returns and positive impact.

Investment Process

The manager employs a disciplined, scalable investment process in its goal to identify appropriate countries, access a robust pipeline of highly selective investment opportunities, and effectively manage risk.  Designed to identify countries with strong growth fundamentals, favorable legal and political frameworks, and unrestricted capital access, target countries are selected through proprietary top-down macroeconomic analysis, augmented with bottom-up expertise from our local market origination partners.  

Origination Partners

Origination partners have been carefully selected based on their demonstrated track records, years of experience in their asset class, independent risk controls and established networks in their specific regions, countries and local markets.  

The Portfolio

The portfolio will consist primarily of directly originated trade finance facilities for established, sustainable private companies in need of growth stage financing, who are also committed to creating positive impact in their communities.

Understanding Trade Finance

“Trade is the lifeblood of the world economy and a key driver of global integration, helping small and medium enterprises (SMEs) to grow and create jobs. Trade finance is the engine of an estimated $16 trillion in annual global commerce and is fundamental to the movement of goods at all stages of the supply chain, especially in emerging markets.”

Manager Overview

  • Track record since June 2013
    • $660 million in Trade Finance transaction (as of 6/30/20)
    • 56 Small & Mid-Sized Businesses supported
    • 22 Developing economies
  • Investment Partner Model
  • Comprehensive Diversification
    • Across Regions
    • Across Countries
    • Across Sectors
    • Across Investment Partners
  • Short Duration
    • Maturities less than 1-year
    • Average Duration ~0.33 years
  • Good Liquidity
    • 1-year Lock & 25% quarterly
    • Self-Liquidating SMA
  • 100% US Dollar Denominated
  • 3rd Party Collateral Managers
  • Insurance on 100% of Trade Finance loans
    • Two most common types of insurance include:
      • Asset Insurance for goods in the warehouse
      • Cost Insurance and Freight (CIF), which is basically transport insurance, in the event anything happens during transit.
    • Both types of insurance are relatively low cost and are based on the type of goods
    • Sovereign Risk Insurance
      • A bit more expensive, but still not that high since the approved countries have relatively low sovereign risk
    • Credit Insurance Risk
      • Rarely needed because Manager is generally in the lowest risk type of Trade Finance

U.N. Sustainable Development Goals

  • SDG 1: No Poverty
  • SDG 2: Zero Hunger
  • SDG 5: Gender Equality
  • SDG 8: Decent Work & Economic Growth
  • SDG 9: Industry, Innovation & Infrastructure
  • SDG 12: Responsible Consumption & Production
  • SDG 17: Partnerships

Transaction Details*

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German Sustainable Infrastructure

Impact Capital Partner’s Overview

FOR INSTITUTIONAL INVESTORS ONLY – This German fund manager’s focus is on sustainable infrastructure in the renewable energy sector, wind and solar power as well as grids and storage technology. Their target portfolio combines existing operational assets and development assets in one vehicle to provide a blended risk and return to investors.

The Joint Phase Portfolio (JPP)*

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Operational Allocation*

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Development Allocation*

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Transaction Details*

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Additional Resources

  • Manager’s Name & Website – Upon Request
  • Pitch Deck – Upon Request

Emerging Europe Growth Equity Fund

Impact Capital Partner’s Overview

FOR INSTITUTIONAL INVESTORS ONLY – This Fund manager has been investing in private equity and private credit in Emerging Europe, Central Asia and Turkey since 2005.  Their investment focus is on Small and Medium Enterprises (SMEs) with an emphasis on developmental impact as a consequence of their investments.  Their 25-person team operates out of five offices in London, Luxembourg, Bucharest, Istanbul and Almaty.

Fund Overview

  • Strategic focus on the rapidly expanding SME segment in Emerging Europe – benefitting from the evolving global and regional trends
  • No other private market offers the growth of an emerging market and the structure & stability of the European Union 

Why Invest in Emerging Europe?

  • Borderless access to the world’s second largest market
  • Solid legal & regulatory framework built on EU standards
  • Abundance of SMEs with high growth potential but poor access to funding 
  • A large, low-cost and highly skilled labour force
  • Stable currency outlook
  • Comparatively low household and government indebtedness
  • Low corporate tax rates

Emerging Europe is One of the Fastest Growing Economies in the the World

  • Emerging Europe has developed into a key trading partner and manufacturing base within the European Union. This has catalyzed the growth in the region.

Key Growth Themes

  • ECONOMIC CONVERGENCE – Increasing disposable income causing an evolution in consumption patterns
  • REGIONAL CONSOLIDATION – Increasing integration & competitiveness of the region within the EU + Increased demand to reduce dependency on external supply chains

Port-COVID Roadmap – Key Themes

  • The world economy is retreating from globalization and seeking increased self- sufficiency at country and regional levels
  • Increase in the importance of regional supply chains within the EU. Regional consolidation will result in higher demand for products manufactured in Emerging Europe
  • Misplaced perception of risk has lowered price expectations of private companies

An Under-Penetrated Private Equity Market

  • One of the most overlooked regions for private equity globally
  • Shortage of growth capital for businesses in the region
  • 90% of the economy are SMEs and in need of financing for further growth 
  • Poor access to funding provides considerable opportunity to generate above average returns

Fund Details*

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Additional Resources

  • Manager’s Name & Website – Upon Request
  • Pitch Deck – Upon Request

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