ImpactAlpha, February 16 – Local fund managers in Africa and elsewhere are often best positioned to deploy capital where it’s needed in their communities and markets. But without exit pathways, “capital can get trapped,” says John Owers of British International Investment. “That creates a fundraising environment that makes it very difficult for general partners to raise new funds.”
This week the UK development finance institution completed the first deal in a new strategy to help itself and other investors exit emerging market impact funds. BII sold three long-held fund stakes to the Swiss impact investment firm Blue Earth Capital.
“We’re hoping that by demonstrating a portfolio sale like this, we can encourage other limited partners to think about their interest in creating some supply into the secondary market,” Owers told ImpactAlpha.
Instant gratification
The positions BII sold to Blue Earth are in funds that have already notched numerous portfolio exits. Blue Earth’s investors, many of whom are new to impact investing, will have the benefit of near-term liquidity because of the funds’ maturity, explained Blue Earth’s Nicolas Muller. “Our LPs will not go through a traditional J-curve. They will see cash coming back on almost a regular basis.”
He added: “By doing this, we think we can remove one of the barriers to bringing new investors into emerging markets, especially Africa.”
Future commitments
Why would BII exit funds as its returns are rolling in?
“It’s a portfolio management tool,” said Owers. “It’s particularly important for us if we can facilitate [capital] mobilization.” He declined to comment on the returns BII is making beyond saying BII is “comfortable with where we’ve landed.”
The development finance institution remains committed to supporting emerging market funds, including by building new vehicles.
“This should in no way signal that we’re looking to exit the funds [strategy] in our markets,” said Owers. “It absolutely remains key and fundamental and central to BII as an impact investor.”
