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The Brief: Opportunity Zone catalyst, Evercare in Bangladesh, incentivizing lending in Africa, inclusive smallholder agriculture, Cliff Prior’s new gig



Greetings, Agents of Impact!

Featured: ImpactAlpha Original

Catalyst seeks to demonstrate positive impact with initial Opportunity Zone investments. Critics of Opportunity Zones capital-gains tax breaks have seized on examples of dubious projects such as luxury condos and storage spaces located in markets where funding was already flowing or in neighborhoods at risk of gentrification and dislocation. The Catalyst Opportunity Fund, seeded by Utah entrepreneur and philanthropist Jim Sorenson, is trying to set a different example, with affordable housing and startup space in South Central Los Angeles, revitalized industrial areas in downtown Salt Lake City, and workforce housing in Bozeman, Mont. Catalyst’s impact framework leverages public data to score community needs, a project’s potential for positive impact, and its actual impact over time. It leverages philanthropic dollars and blended capital to provide wrap-around services and bring down costs for developers. “Our goal all along has been to set an example and be a national model for what the investment funds can look like,” Catalyst’s Jeremy Keele told ImpactAlpha.

Catalyst’s most recent investment, to be announced today, will help SoLa Impact, an impact-focused developer with deep roots in South Central Los Angeles, acquire, rehab and develop multifamily and mixed-used properties across several Opportunity Zones in Compton, Watts and South Central. SoLa founders Martin Muoto and Gray Lusk also plan a mixed-use space, The Beehive, a co-working hub for local businesses. SoLa has already raised $100 million for affordable and workforce housing in South Central. Catalyst shared details of its deals as hundreds of impact investors head to Salt Lake City for the Sorenson Impact Center’s Winter Innovation Summit. The gathering will assess the state of the Opportunity Zone market, which has been slow to develop, at least among impact investors. “We think there are a lot of good deals and real estate projects that meet impact criteria,” says Keele. Less plentiful: “Other funds coming online that are as authentically committed to impact.”

Keep reading, Catalyst seeks to demonstrate positive impact with initial Opportunity Zone investments, by Amy Cortese on ImpactAlpha.

Dealflow: Follow the Money

TPG Growth’s Evercare adds Bangladesh hospital group to its network. TPG Growth is acquiring a controlling stake in hospital operator STS via its Evercare Health Fund, the $1 billion fund originally known as Abraaj Growth Markets Health Fund that is anchored by the Gates Foundation (see What impact multiple of money will TPG Growth generate with global health fund?). STS, part of India-based Apollo Hospitals, runs a 425-bed hospital in Dhaka and is building a 400-bed facility in Chittagong that primarily cater to low- and middle-income patients. TPG Growth’s Rise Fund and CDC Group, the U.K. development finance institution, also backed the deal.

  • Network effects. The acquisition is Evercare’s first in Bangladesh and represents a geographic expansion of the fund’s network for quality, standardized healthcare in global growth markets. Evercare’s portfolio includes more than 90 hospitals, clinics and diagnostic centers in Africa and South Asia. Its network of facilities have treated more than two million patients.
  • Check it out.

CDC Group backs Africa’s banks to ratchet up small business finance. Quasi-public development finance institutions are often criticized for being overly risk averse. CDC Group, the U.K. development finance institution, has promised to take a more catalytic approach (see, How CDC Group is innovating with catalytic capital). The latest demonstration of its Catalytic Strategies: $275 million in commitments to African banks to encourage the banks to extend more financing to the continent’s small businesses, “the bedrock of any healthy economy,” according to CDC.

  • Capital hurdles. For most small businesses, traditional bank financing may be more suitable than venture capital, which is usually reserved for high-growth enterprises. Emerging markets small businesses are often unable to attain bank financing because of banks’ perception of risk or intensive due diligence requirements. CDC is providing $100 million each to South African bank ABSA and Egyptian bank CIB, and $75 million to Pan-African bank TDB. Last year, CDC committed $100 million to a small business lending facility with Standard Chartered Bank Zimbabwe.
  • Fund support. CDC also committed more than $100 million to five private equity and venture funds also supporting Africa’s small and growing businesses.
  • Read on.

AppHarvest closes $11 million for high-tech greenhouse venture. The Kentucky-based company raised financing from Blake Griffin Enterprises and prior investors Equilibrium Capital, ValueAct Capital and Revolution’s Rise of the Rest fund. AppHarvest is building a 2.8-million-square-foot farm in Morehead, Ky., backed by $100 million from Equilibrium.

Arctaris leads $25 million initiative to back Baltimore’s business owners. The program, Arctaris Baltimore, will make loans of $1 million to $5 million to businesses in underserved areas. Boston-based Arctaris is partnering with the Abell Foundation and Baltimore city’s Neighborhood Impact Investment Fund.

New York State earmarks $6 million for clean energy co-investments. The funding is a sliver of Gov. Andrew Cuomo’s plan to make the state carbon-neutral by 2040. The state will invest through its Energy Research and Development Authority (NYSERDA), which has vetted and approved 18 potential co-investment partners.

Signals: Ahead of the Curve

Catalytic investment strategies to improve the lives of millions of small farmers in Africa. When it comes to driving shared prosperity across a market, how capital is deployed is as important as what it funds. In “Bending the Arc,” the consultancy FSG argues for a systemic approach to shifting the practices of a large number of small and mid-size businesses until inclusive practices become the market norm for millions of farmers. The strategy, which requires the effective use of flexible grant and concessional capital, holds far greater potential for positive impact than even smart investments in individual enterprises that affect only thousands of farmers, concludes the report, which was backed by the Gates Foundation and U.K.’s Department for International Development (DFID). Two catalytic strategies stood out:

  • Guide and shift. From an inefficient monopoly in the early 1990s, the Kenyan dairy sector has tripled the number of smallholder milk producers (to 1.8 million), increased annual production to 4.1 billion liters (up 64% since 2001) and significantly improved quality. “Guide and shift” strategies support an ecosystem of enterprises and actors to adopt inclusive practice and shift market norms. Catalytic capital: Donor support and commercial investments can boost the capacity and participation of smallholders and increase the business risk of not being inclusive.
  • Disrupt and grow. Gulu Agricultural Development Company sources and mills cotton, sesame and other products from more than 80,000 smallholder farmers across Northern Uganda. It has used grants and concessionary capital from Danish development bank Danida, Acumen, Root Capital, AgDevCo and others to subsidize the cost of expanding and supporting its supply supply chain of small farmers and to demonstrate a track record that has helped it to access commercial capital. The more common path: “Disrupt and grow” strategies that back individual enterprises with the potential to grow the incomes and stabilize livelihoods for thousands of farmers. 
  • Catalytic tools. Permanent capital vehicles, such as Maris Africa, can better match the time horizons for inclusive agribusiness. Market-level platforms, including East Africa Tea Investments, can help coordinate investment strategies. Farmer trusts, deployed by Babban Gona, can make smallholders owners. Enhancements and incentives, like those be used by Aceli Africa, can mitigate smallholder lending risk for local financial institutions.  
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Agents of Impact: Follow the Talent

Cliff Prior is moving on from Big Society Capital to become chief executive of the Global Steering Group for Impact Investment. The GSG’s Amit Bhatia is stepping down in March after a three-year term. Big Society Capital will search for a new CEO… Federated Investors and Hermes Investment Management combine to become Federated Hermes… CAREseeks a managing director for CARE Social Ventures.

Thank you for reading.

–Feb. 4, 2020

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