The Nigeria-based fund manager ARM-Harith, helps infrastructure developers in West Africa with project equity and project development financing. The firm is in the market with a planned $200 million Climate and Transition Infrastructure Fund, or ACT Fund.
FSD Africa Investments, a UK government-backed investment firm, invested £10 million ($13.2 million) in with a goal of crowding in Nigerian pension funds. FSDAi hopes to unlock three-times its investment from local institutional investors, which have been reluctant to back early stage African infrastructure projects, like those that ARM-Harith invests in.
To get pension funds more comfortable with the model, the fund will make regular distributions to investors to provide liquidity (see, “Restive LPs look to secondaries and creative exits to recoup capital”). FSDAi invested three-quarters of its capital in Nigerian naira “to mitigate the impact of foreign exchange volatility for pension funds,” the partners said in a statement.
Structured exits
ARM-Harith is a joint venture between Nigerian financial services firm ARM and South African infrastructure fund manager Harith General Partners. They incubated the ACT Fund at the Global Innovation Lab for Climate Finance.
The fund makes equity investments in infrastructure projects from a hard currency tranche. Once the assets are operational, it swaps out the hard currency equity for local currency debt, invested through a separate tranche.
Investors willing to take on construction risk can invest in the equity tranche for potentially higher returns. At the operational stage, senior debt providers assume less risk, but accept a lower rate of return.
“The unique blended–currency mechanism addresses high transaction costs and lead times, barriers that have constrained the project pipeline in West Africa, while shortening and simplifying the project exit process to allow efficient redeployment of capital in further projects,” according to the Lab’s project brief.
