ImpactAlpha, December 2 – MicroVest launched in 2003 to expand access to capital to microfinance institutions in emerging markets and facilitate impact investment opportunities for foundations, religious institutions, registered investment advisors and institutional investors. Development advisory firm DAI acquired the Bethesda, Md.-based lender to bolster its investment management arm, DAI Capital.
“This acquisition is about driving productive investment and economic growth in the places that need it most,” said DAI’s Jim Boomgard.
MicroVest, which manages about $260 million, is DAI’s first asset-management acquisition. It follows DAI’s acquisition last November of Magister Advisors, an investment advisor focused on Africa and the Middle East.
Slow organic growth
MicroVest has disbursed more than $1 billion to 200 microfinance institutions in 60 countries. “Our objective was to demonstrate that these responsible financial institutions were not only great development institutions but good investments,” MicroVest’s Gil Crawford told ImpactAlpha.
The company’s assets under management have declined from $392 million in 2017, in part because of the pandemic. The firm has cut its portfolio companies by nearly a third to support “institutions that, throughout COVID-19, have exhibited strong growth and the capacity to continue lending to end borrowers,” MicroVest reported this year.
Fundraising has also been challenging. Investor interest in the microfinance sector has been slow to gain traction in the U.S.
“We need to create products that are attractive to institutional investors,” said Crawford.
Across the pond
European microfinance lenders like BlueOrchard and responsAbility, have been able to scale faster than MicroVest, said Crawford – a function of European investors’ “greater exposure to emerging markets,” as well as more favorable securities laws.
“The securities laws in the U.S. are not as advantageous for putting microfinance loans into a product that could be sold widely to the public,” he explained.
DAI Capital’s larger size, as well as its presence in Europe, could boost fundraising efforts. “It is incumbent for all impact asset managers to offer institutional investors instruments that are large enough to be worth their time and that fit their specific needs,” Crawford sais.
MicroVest is also looking to expand into new investment themes, such as climate finance and fintech investing.
MicroVest engaged DAI shortly before the pandemic started to support the firm in growing its institutional investor base. Crawford said the two companies were aligned on their development and impact missions—DAI is an employee-owned company with a 50-year track record in emerging and frontier markets—and complemented one another in their asset management expertise: MicroVest in microfinance and DAI in climate, healthcare, agriculture, small business and fintech.
With the acquisition, Crawford will stay on as MicroVest’s president.
“The investment team will remain the same, as will the investment committee process, the underwriting process and our social scoring,” he said. “We now have a capital budget to systematically think about how we scale this business.”