AVPN Webinar

24 February 2015
How to set up an
impact finance fund of
US$100 million?

Arnaud Gillin-Innpact
avpn.asia

How to set up an impact finance fund of

$100mn and more from donors, foundations,
pension funds, DFIs and HNWIs?
Structured impact investment vehicles provide for increased efficiency and greater impact.

AVPN Webinar
February 24, 2015

Arnaud Gillin, Partner

Innpact Srl | 5, rue Jean Bertels 1230 Luxembourg | www.innpact.com

Huge potential for Impact finance funds in Asia but

20%

of investments are located in Asia (excl central Asia)

30%

of impact investors plan to investments in Asia

4-6

new funds created per year focusing only on Asia

60%

of funds investing only in Asia with AUM < $100mn

4%

of impact investors are based in Asia

Sources: JP Morgan GIIN survey dated May 2014 and Innpact internal database

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

Challenges for new impact finance funds

Lack clear & adequate investment strategy

Lack of investment ready deals and intermediaries

High risk for mid to low return

Transaction costs and quest for scale

Different investors with different needs

Fund structure

Investment or philanthropy

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

Different Investors Different needs

Impact and return
Potential upside
Min. protection

Impact
Investors

Clear mission
Minimum size
Role in Governance
Return for risk

DFIs

Donors
Foundations
High Impact
Leverage of funds
Patient capital
Risk for innovation
INNPACT Webinar on structured impact investment vehicles

Private
Institutional
Investors
Liquidity - Exit
Volumes
Low Risk
Innpact 2015

3 Examples of structured funds

USD 600m
USD 135m private

Senior
Debt

Large MFIs
with high
liquidity needs

Debt and
Grant TA

African Agri.
value chain to
benefit the poor

2009

USD 108m
USD 37m private
2011

KfW &
Debt and
Shell Foundation Business Support

Small and growing

businesses in
Africa

2014

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

Typical Structure design Structure

INCOME
WATERFALL
Income /
expenses

Investors

Investees

Notes

Investee 1

Institutionals,
HNWIs, SRIs

Senior
A Shares
DFIs,
Fund managers

Investee 2
Investee 3

Assets

Mezzanine
B Shares

Investee 4
Investee 5

Foundations,
Donors,
Venture Phil.
Coop. agencies

Junior
C Shares

Foundations,
Donors,
Coop. agencies

Technical
Assistance

INNPACT Webinar on structured impact investment vehicles

Gains /
losses
Investee 6

CAPITAL
WATERFALL

Innpact 2015

Typical Structure design Waterfalls

INCOME
WATERFALL

CAPITAL
WATERFALL

Income from Portfolio less

Operating & Financing expenses

Defaults, Write-offs, FX
losses

Net Income

Capital Losses

A Shares Target Dividend

C Shares

B Shares Target Dividend

C Shares Target Dividend

B Shares

Investment Manager Perf fee

A Shares
Complementary Dividends A, B, C
INNPACT Webinar on structured impact investment vehicles

Innpact 2015

Different risk-return profiles play different roles

Each tranche is designed with its own tenor, risk, return, voting right
Protection I Return
Notes

Senior Capital

Second Loss Capital

First Loss Capital

Technical Assistance

N
Debt

A
Senior
B
Mezzanine

C
Junior
(Earmarked)
grants

***
**
*

Roles
Notes reduce cost of capital:

**

***

Redeemable capital:

****

Low risk and associated low cost

Creates wider participation in impact

Reduced level of risk

Lower cost than pure equity
Allows for DFI funding

Class C plays a critical role:

Sustainability of vehicle
Efficient use of donor money
Take initial credit and local currency risk
Development oriented

TA essential to increase:

INNPACT Webinar on structured impact investment vehicles

Efficiency of investees activities

Market maturity
Impact
Innpact 2015

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Other examples of structured impact funds

PEAK II
MiGroF
CFF - SE

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

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Why a structured fund approach ?

ADVANTAGES

CHALLENGES

Long term investment

Coordination

strategy and support

Larger scale and more

Complexity
Ramp-up period

efficient funding
Critical size
PPP cooperation platform
Flexibility to accommodate

investors requests
Protection for private

investors
Perfect structure for

innovative strategies
High impact for Donors
INNPACT Webinar on structured impact investment vehicles

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Success factors in designing an impact finance fund

1

MARKET
2

IMPACT
3

STRUCTURE

Clear understanding of market needs

Clear definition of funds mission, scope and objectives

Clear business case

Appropriate definition of impact and reporting indicators

Incentive scheme focusing on financial and impact objectives

Appropriate choice of legal form

Adequate capital structure

Effective organisational structure

Choice of investment committee and other partners

Independent control mechanisms

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

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Why dont you ?

ADVANTAGES
Long term
Larger scale
PPP
Flexibility
Protection
High impact

Role for VP
Setup costs grant
First Loss Capital
Technical

Assistance grant
Investment

endowment in
senior tranche

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

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Our Clients and their Funds

Microfinance
/
SME

Renewable
Energy/
Energy
Efficiency

Impact
Finance /
Agriculture /
Other

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

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Innpact at a glance
25+
Impact
Finance
projects
Mission
Foster sustainable impact
finance initiatives by providing
innovative advisory, consulting
and management support
services

Founded
in
2007

14
Investment
structures
established

INNPACT Webinar on structured impact investment vehicles

9
Management
Support
Mandates

Vision
A world where social and
environmental initiatives
are sustainable

17
persons

7
Directorships

Innpact 2015

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Contact us
Arnaud Gillin - Partner
arnaud.gillin@innpact.com
T : +352 27 02 93 73
M : +352 621 37 64 73
Patrick Goodman - Partner
patrick.goodman@innpact.com
T : +352 27 02 93 55
M : +352 621 49 77 49

Corinne Molitor - Business Development Consultant

corinne.molitor@innpact.com
M: +66 (0)8-6406 0424, Bangkok, Thailand
Innpact
5 rue Jean Bertels
L-1230 Luxembourg
Tel + 352 27 02 93 1
info@innpact.com
www.innpact.com

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

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Typical Structure design Governance & Financing

Investors
General Shareholders Meeting

General
Secretary

Board of Directors

Investment
Committee

Investment
Manager/Advisor

TECHNICAL
ASSISTANCE FACILITY

Shareholders

Noteholders

Shares

Notes

Impact Investment
Vehicle

Service
providers

Investment Decisions

DONORS

Equity
Participations

Loans

Guarantees

Evaluation & Monitoring

TA FACILITY
COMMITTEE

Technical Assistance

Direct Investees (PLIs)

Final Beneficiaries (SEs, MSMEs)

INNPACT Webinar on structured impact investment vehicles

Innpact 2015

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