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Global Health Investment Fund Lifts Cap on Returns

Impact investors may not always get to have their cake and eat it, too, but they at least want to keep open that possibility.

The Global Health Investment Fund I, a novel initiative to raise low-cost capital to develop drugs and vaccines for neglected diseases, is closing in on its interim fundraising goal of $50 million after the fund’s backers lifted a cap on upside returns that was part of the original offer, according to people familiar with the matter. The fund is seeking to raise $100 million to invest in technologies to tackle tuberculosis, malaria, HIV, diarrhea and maternal and infant mortality.

In road-show presentations last spring, prospective investors reacted strongly against an upside cap of 2 percent a year on a 10-year note, several people in the meetings reported. The social impact is great, investors said, but since at least a portion of their capital is at risk, they felt they should share in any upside returns that might result. investors now will receive 80 percent of any returns on top of the simple preferred return of 2 percent per year.

The change was made to broaden the investor pool beyond philanthropic funders. JP Morgan, which helped structure the fund, had originally thought that an innovative loss-sharing arrangement that limited downside risk would be enough to appeal to conventional investors. Under that provision, the Gates Foundation will fully cover the first 20 percent of losses and half of the losses after that. Thus, in the worst case, outside investors could lose only $40 million of the total $100 million fund. That downside protection remains in the revised offer.

The GHIF is part of a broader effort to blend philanthropic and commercial capital to increase investments in treatments for neglected diseases that disproportionately affect low-income countries. The low-cost capital is intended to incentivize pharmaceutical companies and other industry players to complete projects they otherwise might not pursue.

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