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PUBLIC PAPER 03
DEVELOPMENT INVESTMENTS A RESPONSE TO GLOBAL CHALLENGES
TABLE OF CONTENTS
1 PRIVATE FUNDS FOR DEVELOPMENT 6
2 WHAT ARE DEVELOPMENT INVESTMENTS? 8
2.1 INVESTMENT OPPORTUNITIES 8
2.2 RELEVANCE FOR INSTITUTIONAL INVESTORS 14
3 PRIVATE SECTOR, DEVELOPMENT, SUSTAINABILITY 16
3.1 WHAT MUST BE PUBLIC AND WHAT MUST BE PRIVATE? 16
3.2 CAN DEVELOPMENT REALLY BE SUSTAINABLE? 18
3.3 PURSUING NEW PATHS 19
4 CASE STUDY OF A PUBLIC-PRIVATE PARTNERSHIP 22
4.1 FOOD FOR THOUGHT AND GETTING STARTED 24
4.2 FIRST PRIVATE INVESTMENT SOLUTION 25
4.3 EXPANSION OF EQUITY INVESTMENTS 26
5 OUTLOOK 28
6 CONVERSATION WITH SECO’S IVO GERMANN 32
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“Opportunities are arising for the Swiss fi nancial sector in this area with the emergence of new, growing business areas and investment opportunities. Thanks to its general expertise in the environmental sector and its specialist know ledge in the fi nancial sector, Switzerland has the potential to develop a lasting competitive advantage.” Swiss Federal Council, 20 October 2016Source: Financial market policy for a competitive Swiss fi nancial centre
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Change provides opportunities. responsAbility wants to exploit these opportunities – and do more. With develop-ment investments as an investment approach, we actively work towards positive change.
We show why fi nancial returns and impact go hand in hand and why the development investment model measures up to the current global chal-lenges due to its innovative strength and scalability.
We offer our investors access to about 100 emerging local markets worldwide, where we invest directly in companies with scalable business models. Their products or services enrich the market and thus promote development.
While global poverty has been cut in half since 1990, no more than 1 % of the global population is aware of this, according to a survey of 26,000 citizens in 24 countries.1
It is worth paying attention to the hundreds of millions of new consumers around the world. Their needs and aspirations are an engine of transformation. Their world is changing fast, but often not fast enough, and not with the quality and sustainability that they themselves had hoped for. Making these markets invest-able is one of the great challenges of our time.
This discussion paper shows how this task can be implemented. We examine the interface between investment market and development fi nance over the last 15 years and also allow the public partner to have its say. In addition, we show why fi nancial returns and impact go hand in hand and why the development investment model measures up to the current global challenges due to its innova-tive strength and scalability.
1 Oxfam, September 2016: Towards 2030 without poverty
DEVELOPMENT CREATES INVESTABLE OPPORTUNITIES
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Global sustainability goals cannot be achieved without private sector fi nancing. The public sector helps to mobilise more private capital by making initial investments.
The fi nancing requirements – estimated to be at least USD 1.4 trillion per year2 in the coming years – cannot be covered by state budgets alone.3 Only the invest-ment market can mobilise funding on this scale.
Therefore, the traditional development partners are making efforts to involve the private sector not just for project implementation, but also for capital mobilisa-tion. Leading the way are the large development banks, including KfW, IFC and FMO,4 which increasingly harness the effi ciency and decentralised expertise of the private sector for project implementation. At the same time, they use the invested state funding in a strategic way to attract additional fi nancing from the private investment market.
If this is done successfully, the relationship between public and private funding changes over time in a process called “leveraging.” If the state development bank initially injects USD 100 million into a fund and then USD 50 million is added each year by the private sector, the leverage changes from 1:0 to 1:2 after four years. In order to accelerate the leveraging, risk-mitigating incentives are often set for private investors (in a process called de-risking).
The approach is intuitive and has met with broad acceptance in the public and private sectors. Private funding mobilised in this way represents an important private sectors. Private funding mobilised in this way represents an important element of development fi nancing. However, the funding requirements involved in fi nancing the ambitious development agenda are enormous. The demand exceeds the supply by far. In the innovative approach of development banks, public funding remains the limiting factor.
1 PRIVATE FUNDS FOR DEVELOPMENT
The United Nations’ global development agenda (Sustainable Develop-ment Goals) adopted in September 2015 and the international climate change agreement (COP21) signed by 177 countries in 2016 have one key point in common: Both want to involve the private sector in fi nancing their ambitious goals.
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Now, private sector actors have managed to mobilise billions of dollars from vari-ous investor groups through their own fi nancing solutions and without de-risking. In both institutional and private asset management, an interesting niche has established itself under the label “development investments.” In this publication, we will trace the evolution of this market segment.
It will become clear that both approaches complement each other perfectly. In this regard, the public and private sectors should focus on their respective advan-tages. The scarcity of public funding gives strong impetus to a strategic use of public funds. Public sector actors will probably achieve the most in areas where the private sector still does not venture to operate alone. Some examples include long-term debt fi nancing, fi nancing in exotic local currencies or sectors in which scalable business models are rare. The public sector can help the private sector to gain a foothold in diffi cult terrain so that the latter can then leverage its broad impact and attract large investment volumes by generating returns.
In the last 15 years, the foundations have been set for the private investment market to play a much larger role in development fi nance. For example, private sector providers have established a track record and attracted billions in funding through their own products. However, we also show that public sector actors have often acted as sponsors for aspiring companies in the evolution of this new form of development fi nancing. As a result, they can defi nitely credit the billions in funding as leverage.
Chapter 2 provides an overview of the market for development investments and explains why the niche has now reached a critical mass. Chapter 3 traces the development policy approaches of the last 50 years and examines to what extent public and private sector engagement is complementary and how sustainability and development are compatible. Chapter 4 provides a case study and tracks the results of the federal government’s initial investment in a responsAbility Investments fund in 2003. Finally, Chapter 5 looks forward and ventures to make a prediction with regard to the emerging opportunities and challenges of the coming years.
GOOD TO KNOW
Development investments attract large investment volumes by offering investors an investment with a fi nan-cial return and development impact. The private investment market now plays a much larger role in develop-ment fi nance.
2 Sustainable Development Solutions Network, 2015: Investment Needs to Achieve the Sustainable Development Goals
3 IMF / World Bank, 2015: From Billions to Trillions: Transforming Development Finance
4 KfW – Kreditanstalt für Wiederaufbau, IFC – International Finance Corporation, FMO – The Netherlands Development Finance Company
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2.1 THE INVESTMENT OPPORTUNITY
Development investments are return-oriented investments in private companies Development investments are return-oriented investments in private companies whose inclusive business models benefi t broad sections of the population in emerging and developing countries. They focus on sectors whose services are essential for any society’s prosperity, such as fi nance, energy and climate change adaptation, agriculture, education, healthcare, water and sanitation, or housing (Figure 1).
Hundreds of millions of emerging end consumers constitute a source of relent-less demand growth. Private companies capture that demand by offering goods and services which end customers judge superior to the available alternatives. For example, low-cost solar home systems are replacing kerosene and other unhealthy fossil energy sources. Given the enormous size of the population, highly scalable business models offer high growth potential. However, most companies are unlisted and can only be accessed through direct investment.
With the help of private capital, companies can provide new products and services for underserved end customers in sectors critical for development. This enhanced offering results in general development and prosperity as well as in the companies’ commercial success, which in turn can benefi t investors through adequate fi nan-cial returns.
Development investments focus on development-related sectors in devel-oping countries. Given the size of the population, highly scalable business models offer high growth potential. Companies’ commercial success bene-fi ts investors through fi nancial returns.
2 WHAT ARE DEVELOPMENT INVESTMENTS?
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THE MARKET
A survey of available databases5 reveals a market size of USD 30 billion in assets under management by development investment intermediaries. The segment has grown by more than 20 % a year over the past decade. Switzerland is a leading global hub of development investments with USD 9 billion in assets under man-agement.6 Going forward, development investments are likely to benefi t strongly from both the Paris Agreement and the UN Sustainable Development Goals7 given the bold commitments by governments and large private sector actors.
GOOD TO KNOW
The market for development invest-ments has grown by more than 20 % a year over the past 10 years.
Figure 1: Development investments by sector
Source: GIIN ImpactBase, Preqin, Symbiotics MIV Survey
HousingUSD 1,000 m
AgricultureUSD 1,300 m
HealthcareUSD 160 m
Water and sanitation USD 1,700 m
Energy and climate adaptation USD 9,000 m
FinanceUSD 17,000 m
EducationUSD 26 m
5 GIIN ImpactBase, Preqin, Symbiotics MIV Survey, company websites6 Survey by University of Zurich and Swiss Sustainable Finance, 2016 7 The Sustainable Development Goals is an intergovernmental agreement adopted
by the UN General Assembly on 25 September 2015.
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INVESTMENT INSTRUMENTS
Development investments typically come in simple and transparent structures and aim for market rate returns. Products are either purely debt or equity instruments, or any blend of the two. The underlying investment instruments are principally private debt and private equity.
Debt investments consist of senior or subordinated debt. In addition, there is an emerging but still very limited market for secondary transactions. In most cases, the investor is offered limited liquidity with monthly or quarterly redemptions. Currency exposure can be hedged even for exotic currencies.
Private equity investments are usually structured in limited partnerships or in holding companies. Optimal holding periods tend to be longer on average than for comparable investments in developed markets, as book value development by business model execution is the dominant value driver. Industry experience shows longer holding periods can be in the interest of both sponsors and investors.8
Average transaction sizes of both debt and equity instruments have increased strongly with sector development in emerging economies. In the fi nancial sec-tor, for instance, private equity transactions of USD 2 million to USD 5 million in microfi nance institutions were common in the past. However, over the years, the respective institutions have grown and today, transaction sizes of around USD 20 million are common. The strong growth in transaction sizes requires successful sequencing and up-scaling of funds with a limited term or adjustable open-ended structures.
Development investments aim for market rate returns. The recommended holding period tends to be longer on average than for comparable invest-ments in developed markets.
Average transaction volumes of devel-opment investments have increased strongly with sector development.
The strong growth in transaction sizes requires successful sequencing and up-scaling of funds with a limited term or adjustable open-ended structures.
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INVESTMENT THEMES
Thematically, the products can focus on a single sector or several defi ned sectors, or they can be sector-agnostic. Investment teams typically focus on one sector as the analysis of sector-specifi c business models and the assessment of their implementation by skilful entrepreneurs is crucial.
Investors can make a business model achieve a break-through by fi nancing multiple companies in a market. This was seen in the microfi nance industry, where investors contributed substantially to industry building.9 Similar patterns of industries being fostered by investments are emerging in other sectors.
8 Peter Olds, Cleary Gottlieb Steen & Hamilton LLP, 20159 David Roodman, “Due diligence: An impertinent inquiry into microfi nance”, CGD Books, 2012
GOOD TO KNOW
Investors can make a business model achieve a break-through – as illustrated by the microfi nance sector. Aside from the fi nancial sector, more recent investment themes such as energy and agriculture are attracting increasing volumes of institutional assets.
KEY SECTORS ATTRACTING DEVELOPMENT INVESTMENTS
Education: Enhanced academic opportunities and quality of education
Healthcare: Health services and access to medicine
Housing: Access to quality and affordable housing
Agriculture: Sustainable agricultural production, domestic processing, food security
Water and sanitation: Access to safe drinking water and sanitation, water conservation.
Energy and climate change adaptation: Production of clean energy, access to clean energy, reduction of carbon emissions and climate change adaptation
Finance: Financial services for micro, small and medium- sized enterprises and low-income households, including microfi nance, SME banking and micro-insurance
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The fi rst sector to attract large volumes of development investments was fi nance. Financial institutions play a key role in economic development and should develop fi rst, facilitating the growth of real economy sectors.develop fi rst, facilitating the growth of real economy sectors.
While some institutional investors were early adopters of microfi nance, many more followed at the beginning of this decade once a multi-year performance track record was established. Today, microfi nance is a mainstay of institutional development investments.
Other sectoral investment themes such as energy or agriculture have developed more recently and are now attracting increasing volumes of institutional assets.10
In all sectors, private investors today benefi t from decades of ground-breaking work by public development fi nance from large development fi nance institutions (DFIs) such as IFC, EBRD or KfW. The geographical target markets of development investments are diversifi ed across more than 100 countries in Latin America, Africa, and Asia.
PROVIDERS
As the underlying investment instruments are sourced locally and directly, market proximity is key. The quality of transaction sourcing is crucial and due diligence is diffi cult to perform from a desk, but should happen on-site. Therefore, the larger investment managers operate global sourcing platforms empowering local spe-cialists to process transactions in accordance with active portfolio management requirements. Specialised providers in Switzerland can be found on the Swiss Sustainable Finance website. Their offering is increasingly differentiated across themes, instruments, return characteristics, and size.
Market proximity and due diligence should happen on-site.
10 Alex Nicholls, Rob Paton, Jed Emerson, “Social Finance”, S. 218, Oxford University Press, 2015
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EXAMPLES OF DEVELOPMENT INVESTMENTSEXAMPLES OF DEVELOPMENT INVESTMENTS
Fund theme Description Instrument Investors Target return
Size
Energy and climate change adaptation
Mitigates climate change through a reduction of greenhouse gas emissions by fi nancing energy effi ciency and renewable energy projects
Private debt / mezzanine capital
Institutional, DFI
10 – 15 % USD 100 – 500 m
Financial institutions
Takes long-term private equity posi-tions in fi nancial intermediaries with a solid track record of providing fi nancial services to low-income groups, micro-enterprises or SMEs
Private equity Institutional 15 – 25 % USD 100 – 500 m
Financial institutions
Provides private debt fi nancing to fi nancial intermediaries with a solid track record of providing fi nancial services to low-income groups, microenterprises or SMEs
Private debt Institutional, private
3 – 6 % USD 250 m – 1 bn
Education Funds customised fi nancial services for the education sector in a demand- oriented and fi nancially sustainable manner
Private debt DFI, institutional
2 – 5 % USD 100 – 200 m (target)
Climate insurance
Contributes to the adaptation to climate change by improving access to and the use of insurance in developing countries
Private debt or equity
DFI, institutional
2 – 5 % USD 100 – 200 m (target)
Multisector equity
Is set up as a limited partnership and invests in commercially viable companies that deliver essential goods and services which directly benefi t low- income communities by providing access to affordable housing, health-care, education, energy, livelihood opportunities, water, and sanitation
Private equity Institutional, private
15 – 25 % USD 100 – 200 m (target)
Multisector fund-of-funds
Serves as a multi-strategy product investing in a number of different themes, markets, regions and asset classes, with a 60 % fi xed income, 30 % high yield and 10 % equity breakdown target
Private debt or equity
Institutional, private
10 – 15 % USD 100 – 200 m (target)
Source: responsAbility Investments AG, 2016
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2.2 RELEVANCE FOR INSTITUTIONAL INVESTORS
The emergence of investable and scalable companies in fast-growing market segments of developing countries – and improved access to them – increasingly creates investment opportunities with market returns. Moreover, these returns are modestly to minimally correlated with most other assets investors usually hold in their portfolios, as private debt or private equity investments in unlisted companies rooted in the real economy are hardly affected by the swings in global fi nancial markets.
Moreover, adding development investments to an investment universe offers additional and mostly uncorrelated risk premiums, although in some cases at the cost of lower liquidity than other assets. In addition, development investments enhance the diversifi cation of investor portfolios and hence their risk-return profi le. The low correlation is partially explained by the fact that development investments are frequently valued using a “hold to maturity” method. In addition, though, they also effectively mitigate any home bias. Therefore, development investments should have their share in any investment portfolio.
GENERATING VALUE FROM VALUES
A trend in society towards the sustainability of all aspects of life has only just started to permeate the fi nancial markets. Asset owners can make a major con-tribution to boosting development and alleviating poverty by allocating capital in places where it is scarce and highly effective. Through their investments they empower local entrepreneurship which provides the solutions to many of the problems common to poor households.
Asset owners such as endowments and foundations increasingly seek to invest in accordance with their values, motivated by their boards or members. The same holds true for pension funds accountable to their contributors’ growing interest in how assets are being allocated.11 Given their size and professional clout, institu-tional investors play a central role in how capital is deployed. Long-term investors will not only see companies grow, but will see the building of entire industries catering to large populations of emerging consumers. This was clearly observed over the last decade of fi nancial sector development.12
GOOD TO KNOW
Major asset owners increasingly seek investment opportunities that contrib-ute to sustainable development.
Asset owners can make a major contribution to boosting development and alleviating poverty. Through their investments they empower local entrepreneurship which provides the solutions to many of the problems common to poor households.
Development investments are barely correlated with mainstream asset classes and enhance the risk-return profi le of investor portfolios.
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INVESTMENT HORIZON AND IMPACT
Private equity offers investors the possibility to exercise direct infl uence on the development and growth of a company. As development does not happen in the short term, but requires time, private equity is an ideal development investment instrument. The impact of debt investors tends to be less profound, but broader, as large volumes can be deployed over many investees. Private debt excels with performance stability thanks to diversifi cation across several dozen countries and enables investors to tactically adjust their exposures.
ASSET CLASSIFICATION
In recent years, private debt, e. g. in the context of microfi nance debt funds, was often classifi ed as ‘fi xed income emerging markets’ due to its stable return characteristics and thus allocated to the fi xed income asset class by pension funds. In most cases, however, development investments fall into the ‘alternative investments’ asset class, a trend that has increased since the revised BVV2 regu-lation came into force in 2015. Already since 2009, Swiss pension funds have been subject to a 15 % limit for alternative investments,13 which is why development investments often compete with other alternative asset classes, some of them with higher target returns. However, an extension of this limit, e. g. to include development investments, is explicitly foreseen by the law.
GOOD TO KNOW
Private equity and private debt are suitable instruments for development investments.
11 Cathy Clark, Jed Emerson, and Ben Thornley, “The Impact Investor”, 264, 201412 David Roodman, “Due diligence: An impertinent inquiry into microfi nance”, 201213 Ordinance on Occupational Retirement, Survivors‘ and Disability Pension Plans
(BVV2) Article 50, Paragraph 4
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3 PRIVATE SECTOR, DEVELOPMENT, SUSTAINABILITY
3.1 WHAT MUST BE PUBLIC AND WHAT MUST BE PRIVATE?
The public sector covers the basic needs that the private sector fi nds unappealing The public sector covers the basic needs that the private sector fi nds unappealing or even impossible to fi nance, such as infrastructure or primary education. The or even impossible to fi nance, such as infrastructure or primary education. The services that are organised by the state and fi nanced through taxpayer funds thus services that are organised by the state and fi nanced through taxpayer funds thus ensure a basic level of a functioning state.ensure a basic level of a functioning state.
In developing countries, the public sector is, for the most part, poorly resourced In developing countries, the public sector is, for the most part, poorly resourced due to an inadequate tax base. The lack of a tax-paying middle class means that due to an inadequate tax base. The lack of a tax-paying middle class means that the state is not as accountable to its citizens as it is in most developed countries. the state is not as accountable to its citizens as it is in most developed countries. This frequently leads to disastrous disincentives: At worst, state services provided This frequently leads to disastrous disincentives: At worst, state services provided for by law are privatised by bureaucrats who demand favours and bribes in the for by law are privatised by bureaucrats who demand favours and bribes in the process.
The solution is to reform government administration by boosting transparency The solution is to reform government administration by boosting transparency in fi nancial management and by improving the business environment, while pro-in fi nancial management and by improving the business environment, while pro-viding an additional supply of products and services through the private sector, viding an additional supply of products and services through the private sector, which adapts to customer requirements through competition. Both approaches which adapts to customer requirements through competition. Both approaches complement each other. It is vital that citizens have choices so that they can complement each other. It is vital that citizens have choices so that they can generally reject an offer they consider unsatisfactory. generally reject an offer they consider unsatisfactory.
Poverty impairs human performance and leads to short-term thinking as well as forced decisions. Households leading a hand-to-mouth existence do not invest in the future.
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Amartya Sen, who won the Nobel Prize in economics, considers poverty to be Amartya Sen, who won the Nobel Prize in economics, considers poverty to be the absence of such choices.14 Poverty impairs human performance and leads to Poverty impairs human performance and leads to short-term thinking as well as forced decisions. Households leading a hand-to- short-term thinking as well as forced decisions. Households leading a hand-to-mouth existence do not invest in the future. The consequences for society and the mouth existence do not invest in the future. The consequences for society and the environment are visible in the misery and pollution of developing countries.environment are visible in the misery and pollution of developing countries.
The response to this should not just amount to demands for more state aid or The response to this should not just amount to demands for more state aid or legislative measures, nor should it lead to simply looking away in disgust. Com-legislative measures, nor should it lead to simply looking away in disgust. Com-plementation means investing prudently in local entrepreneurship, which creates plementation means investing prudently in local entrepreneurship, which creates choices and – if the entrepreneur’s offering is a lasting success – generates jobs, choices and – if the entrepreneur’s offering is a lasting success – generates jobs, income and taxes.
The public sector covers basic needs – the private sector takes over when public resources reach their limits. Investments in local entrepreneurship generate jobs, income and taxes.
14 Amartya Sen, 1999: Development as Freedom
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3.2 CAN DEVELOPMENT REALLY BE SUSTAINABLE?
Sustainability is often associated with preservation, reduction and moderation. Development is closely linked to the concepts of change and growth. At fi rst glance, it therefore involves a contrast. The logging of rainforests and other environmental damage in the Third World prompt the urge to prevent worse from happening and to stop development on these continents.
This view is wrong and mixes up cause and effect. In fact, poverty is sustainability’s greatest enemy. Adversity and the lack of alternatives lead to short-sighted be hav-iour patterns that are detrimental in the longer term to the individual, his social surroundings or the environment.
In wealthy countries, material well-being is ubiquitous. Natural resources, on the other hand, are scarce. As a result, the natural world is nurtured and cared for. Mountain farmers are valued and supported as landscape gardeners and can even pursue a second job in the city thanks to transport access or an Internet connec-tion. By contrast, smallholder farmers and micro-entrepreneurs in developing countries often live from hand to mouth. Out of necessity, they plunder natural resources. The consequential devastation, soil erosion or water pollution creates a sustainability problem as the next generation no longer has the same resources at its disposal.
Migration, or even emigration, remains the only way out of poverty. In the 19th
century, Switzerland was in this predicament. An impoverished rural population became motivated to emigrate. However, the private sector simultaneously expe-rienced a profound structural transformation as it underwent industrialisation. Home-based work at the weaving loom suddenly turned into spinning mills, textile factories, chemical fi rms and, fi nally, pharmaceutical companies.
The developing countries of the 21st century face similar challenges, which can be overcome to a large extent by using the same formula: Technological progress leverages new business models to tap the enormous demand of millions of households in their efforts to catch up. As a rule, these business models produce in a far more effi cient and environmentally friendly way than those that they are replacing.
Of course, investors have the possibility and the legitimate claim to invest in par-ticularly environmentally friendly companies. However, it is vital that they initiate development through their investment in the fi rst place and thereby contribute to solving the problem. For direct investors in non-public companies, a long-term orientation is paramount in any case so that they fi t in with the economy’s gradual evolution, which creates prosperity and, fi nally, gives the environment rapidly increasing value.
Investors initiate development through their investment and thereby contribute to solving the problem.
Poverty is sustainability’s greatest enemy. Out of necessity, smallholder farmers and micro-entrepreneurs in developing countries plunder natural resources.
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3.3 PURSUING NEW PATHS
With this knowledge, ways are being sought in the development cooperation fi eld to involve the private sector to a greater degree. However, due to the private sector’s scale, breadth and diversity, the question is increasingly posed as to where the needed fi nances will come from and to what extent the use of tax-payer funds is appropriate. The Monterrey Consensus of 2002 still placed great hope in increased government funding for development. Switzerland – as well as a handful of other countries – pursued a more unconventional approach at the time. The Swiss State Secretariat for Economic Affairs (SECO) and the Swiss Agency for Development and Cooperation (SDC) decided to support – specifi cally – the germination of the fi rst business models for development investments in the Swiss fi nancial market.
In terms of sheer volume, the seed funding provided at the time paid off at a factor of 1,000 in some cases (see Chapter 4). This scale may be astonishing, but it certainly matches the growth that can be sparked in developing countries if the immense potential is tapped using entrepreneurial initiatives and technological progress on a broad level. Companies that have scaled from 1,000 to 100,000 or even a million customers are well-known examples in the fi nancial sector. Double- digit average annual growth rates are also common in other sectors, such as renewable energy. The key factor is the scalability of the business model as well as the careful assessment of management’s ability to implement the model. Anyone who wants to fi nance such growth needs a large amount of funding.
In wealthy countries, billions – or even trillions in aggregate terms – are available through private savings and pension fund money. This capital seeks returns. The role of fi nancial intermediaries is to make a solid connection between investor requirements and demand for fi nancing.
Double-digit average growth rates are common in sectors such as renewable energy. In wealthy countries, trillions in private savings and pension fund money are seeking returns.
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PUBLIC SECTOR SUPPORT FOR THE PRIVATE SECTOR
3. Financial de-risking instruments: 3. Financial de-risking instruments: The transfer risks that investors face The transfer risks that investors face to public actors such as development to public actors such as development banks. Some examples are:
Concessional loan: Financing that offers more fl exible or lenient terms for repayment than market terms, usually at lower than market interest rates. Often provided customarily by government agencies and not by fi nancial institutions. Also called soft loans.
Guarantee: Financial guarantees are an instrument for the transfer of risk. At the most simplistic level, the devel-opment fi nance institutions will pay a debtor’s debt in case of default if the bank has agreed to act as the guaran-tor for the debtor in advance.
4. Product development partnerships (PDP): The PDP model emerged in the 1990s. The objective was to fi nd inno-vative approaches in order to reduce the burden caused by poverty-related illnesses such as malaria. PDPs are foundations that are fi nanced through public and private funding. Within the PDPs, industrial sectors (such as pharma ceuticals and biotechnology) and research institutions are repre-sented and make their expertise and knowledge available for the develop-ment of affordable products that are relevant to the needs and living condi-tions of the people.
National and international development fi nance institutions (DFIs) are specialised development banks or subsidiaries set up to support private sector development in developing countries. They are usually majority-owned by national govern-ments and source their capital from national or international development funds or benefi t from government guarantees. This ensures their creditworthiness, which enables them to raise large amounts of money on international capital markets and provide fi nancing on very competitive terms. DFIs depend on profi ts from their investments to ensure resources for further engagements. These insti-tutions provide a crucial role in providing credit in the form of higher risk loans, equity positions and risk guarantee instruments to private sector investments in developing countries.
We differentiate between the following roles:
1. Grants: Transfer of resources with no obligation and expectation of return. Perhaps the most transparent form of concessional fi nance since the subsidy component is equal to the grant’s face value. Due to the DFIs’ self-sustainable mechanism this usually only accounts for a very small part of their business and is fi nanced separately through donors.
2. Seed capital: Seed capital is the start-up capital required to establish a company. Apart from equity capital, it can also largely consist of debt such as risk capital from lenders and investors.
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DEVELOPMENT FINANCE INSTITUTIONS
Bilateral Regional
CDC – UK ADB – Asian Development Bank
PROPARCO – France IADB – Inter-American Development Bank
FMO – Netherlands AfDB – African Development Bank
DEG – Germany EIB – European Investment Bank
OPIC – US EBRD – European Bank for Reconstruction and Development
Multilateral
IFC – International Finance Corporation
MIGA – Multilateral Investment Guarantee Agency (World Bank)
5. Public-private partnerships (PPP): The term “public-private partnership” describes a range of possible relation-ships among public and private entities. Previously this term was mainly used in the context of infrastructure; today a broader defi nition is used, which also applies to other services.
Source: Taylor Dimsdale and Marcela Jaramillo, 2014: Designing Smart Green Incentive Schemes: The Role of Development Finance Institutions
6. Advisory and knowledge: Develop-ment banks often act in cooperation with governments and other organisa-tions in providing funds for technical assistance, feasibility studies, and management consultancy, as well as serving as channels for policy imple-mentation.
21
4 CASE STUDY OF A PUBLIC-PRIVATE PARTNERSHIP
Zurich-based responsAbility Investments AG specialises in development investments. For its fi rst investment solution, the company – which was established in 2003 – gained the Swiss State Secretariat for Economic Affairs (SECO) as a founding investor.
Start-up investment from the public sector as an enabler of private invest ments that generate fi nancial returns and development impact – respons Ability has successfully replicated this principle since 2003.
Due to this start-up investment from the public sector, responsAbility has been able to successfully mobilise funding from the private sector over the years. Profi table investments – fi nancially and with a development impact – became responsAbility’s trademark and resulted in investment volume growth of 53 % per year in the period from 2005 to 2015. In specifi c terms, the investment volume grew by a factor of 70 from USD 43 million to USD 3 billion during this period.
The principle that the state, as pioneer, grants start-up fi nance and the private sector then makes multiples out of it, is something that responsAbility has been able to successfully replicate many times, as we will show in the next chapter.
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Figure 2: responsAbility’s development investments – development over time with initial investments
Source: responsAbility Investments AG, 2017
23
4.1 FOOD FOR THOUGHT AND GETTING STARTED
Inspired by his two-year bicycle tour across Africa, the former Credit Suisse banker Inspired by his two-year bicycle tour across Africa, the former Credit Suisse banker Klaus Tischhauser decided to give the Swiss fi nancial industry new impetus. He Klaus Tischhauser decided to give the Swiss fi nancial industry new impetus. He recognised the potential to sustainably advance development in developing and recognised the potential to sustainably advance development in developing and emerging nations through commercial private investments. Sustainable invest-ment opportunities at the time were limited to the developed world and tried to fi lter distinguish the more sustainable companies from the less sustainable ones using special fi lters and selection methods. Furthermore, the issue of devel-opment was hardly covered by these so-called sustainable products; the focus was mostly on environmental aspects. That was not suffi cient for the founders of responsAbility. Capital should be effective where a lack of sustainability is life-threatening. And capital should go directly to places where it has the most effect.
The mission was to bring together responsible-minded (“responsible”) investors with companies that can (“ability”) make a positive contribution to social devel-opment.15 The young company focused on sectors with a strong infl uence on economic and social development. Even today, it still invests directly in the private sector and in companies that offer products and services for low-income house-holds and micro-, small and medium-sized enterprises.
In order to receive the most widespread acceptance and support possible, various representatives of the Swiss fi nancial community were involved in the founding of responsAbility, particularly large banks, retail banks, private banks, ethical banks as well as asset managers. Qualifi ed private individuals, such as Walter Fust, the director of the Swiss Agency for Development and Cooperation (SDC) at the time, also became involved as advisers.
responsAbility’s mission: bringing together responsible-minded investors with companies that can make a positive contribution to social devel opment.
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4.2 FIRST PRIVATE INVESTMENT SOLUTION
In November 2003, responsAbility launched its fi rst investment product. The fund invests globally in the microfi nance sector and pursues the goal of building up and expanding the fi nancial sector in developing and emerging nations. The broadly diversifi ed investments are made either directly in microfi nance institu-tions (MFIs) or indirectly through institutions or investment products that invest in MFIs themselves.
One prestigious sponsor of the fund was Credit Suisse. Since the fund had the objective of promoting development in developing and emerging nations, it was self-evident that the federal government should also be involved, along with the Swiss fi nancial sector. Not only was the private initiative able to benefi t from the government’s experience, but it also ensured that the greatest possible effect could unfold in terms of development policy.
While SDC contributed its expertise, SECO decided to double the capital invested by the private sector in responsAbility up to an amount of USD 3 million, thus making initial capital available. Private capital came from the bank Baumann & Cie and from the Raiffeisen Group, followed by funding from Swiss Re, the collective foundations Ethos and Nest, the aid organisation Swissaid as well as from private individuals.
The responsAbility microfi nance fund received a state distribution license from the Swiss Federal Banking Commission (SFBC) in 2004. This was a novelty: For the fi rst time in the Swiss credit market, a product specialising in development invest-ment was made available to the general public. Bestowed with the state distribu-tion license and with the UN declaring 2005 the International Year of Microcredit, the fi rst responsAbility fund enjoyed great success. In 2007, SECO’s investment was already paid back in full. As of mid-2016, the fund manages more than USD 1 billion and is invested in over 90 countries and more than 300 counterparties.
responsAbility soon recognised that there were further opportunities for invest-ment vehicles with a development aspect and these were supported by the federal government. At the end of 2007, a fund-of-funds product was launched with seed capital from SECO, making the development work of SIFEM16 accessible to private investors for the fi rst time.
15 The company name “responsAbility” is composed of the two words “responsible” and “ability.”16 The Swiss Investment Fund for Emerging Markets (SIFEM) is the federal government’s develop-
ment fi nance institution. SIFEM promotes long-term, sustainable and broad-based economic growth in developing nations as well as countries in transition by providing fi nancial support for small, medium-sized and fast-growing companies that are commercially viable. In this way, it helps to create secure, formal jobs and to reduce poverty.
responsAbility’s fi rst investment pro-duct: a broadly diversifi ed microfi nance fund. The public sector contributes expertise and capital. Today, the fund manages more than USD 1 billion and is invested in over 90 countries and more than 300 counterparties. New investment vehicles with development impact: a fund-of-funds product and a private equity fund.
25
Apart from its investments in microfi nance, responsAbility wanted to diversify in Apart from its investments in microfi nance, responsAbility wanted to diversify in other sectors. At the end of 2010, the fi rst pure private equity fund was launched. other sectors. At the end of 2010, the fi rst pure private equity fund was launched. Once again, state and international organisations were involved in its formation. Once again, state and international organisations were involved in its formation. Thanks to this novel investment vehicle, responsAbility gained much valuable Thanks to this novel investment vehicle, responsAbility gained much valuable experience as well as a deeper understanding of new sectors and business models experience as well as a deeper understanding of new sectors and business models in the agricultural and energy industries.
In 2005, responsAbility already began to diversify. At this point in time, the com-In 2005, responsAbility already began to diversify. At this point in time, the com-pany made its fi rst investments in coffee cooperatives and fair-trade organisa-pany made its fi rst investments in coffee cooperatives and fair-trade organisa-tions. Since more and more investment opportunities were becoming apparent, tions. Since more and more investment opportunities were becoming apparent, responsAbility launched a debt fund with a focus on sustainable agriculture in responsAbility launched a debt fund with a focus on sustainable agriculture in 2011. As of 2016, this investment vehicle manages more than USD 200 million and 2011. As of 2016, this investment vehicle manages more than USD 200 million and is invested in over 40 countries and agricultural commodities. is invested in over 40 countries and agricultural commodities.
responsAbility reached another milestone in 2013 by winning the mandate for responsAbility reached another milestone in 2013 by winning the mandate for a fund focusing on global climate change. Built as a public-private partnership a fund focusing on global climate change. Built as a public-private partnership and supported by the IFC, OeEB, FMO, KfW as well as Federal Ministry for Environ-and supported by the IFC, OeEB, FMO, KfW as well as Federal Ministry for Environ-ment, Nature Conservation, Building and Nuclear Safety (BUMB), Department for ment, Nature Conservation, Building and Nuclear Safety (BUMB), Department for Business, Energy and Industrial Strategy (BEIS) and Ministry of Foreign Affairs of Business, Energy and Industrial Strategy (BEIS) and Ministry of Foreign Affairs of Denmark DANIDA, the fund offers a platform that unites different parties towards a common goal. The cooperation with KfW, which employs 6,000 people and has EUR 500 billion in total assets, emphasises that responsAbility, as a private Swiss provider, is also attractive for public-private partnerships from an international perspective.
In 2015, responsAbility launched an investment solution that enables customised investments for access to energy. The fund is accompanied by another develop-ment fund, which received CHF 500,000 in funding from SECO. The investment capital originated from both public and private sources.
4.3 EXPANSION OF EQUITY INVESTMENTS
Due to its steady growth, responsAbility today manages more than USD 3 billion in assets. Consistent with the investment strategy of development investments (see Chapter 2), the fi nancial crisis that shaped the decade never had a signifi cant impact on the fi nancial performance of the investment vehicles. Using SECO’s initial funding of USD 3 million as a comparison, responsAbility was able to mul-tiply the volume of development investments by a factor of 1,000. As of mid-2016, public funding of about USD 600 million (19 % of assets under management) was invested, originating from international development banks in the majority of cases.
The founding partners of responsAbility still hold a majority of the share capital, while employees hold up to 30 %. responsAbility employs about 250 people in 10 offi ces worldwide: Bangkok, Geneva, Hong Kong, Lima, Luxembourg, Mumbai,
GOOD TO KNOW
Diversifi cation into new investment areas: sustainable agriculture, climate change and energy.
26
The global fi nancial crisis never had a signifi cant impact on the fi nancial performance of development invest-ments. Regional offi ces provide for in-depth insight into local needs and investment opportunities. The range of investment products is being expanded.
Nairobi, Oslo, Paris and Zurich. The regional offi ces enable the company to rapidly and comprehensively identify and analyse local needs and investment opportuni-ties on the ground.
responsAbility is well-equipped to expand its range of investment products through its local transaction specialists, its centralised risk and portfolio manage-ment as well as its experienced management team. While investments today are mostly allocated to fi xed-interest securities, such as loans and promissory notes, a further expansion in the placement of equity capital is now in progress in the agricultural and energy sectors. A capital increase was carried out in 2016 specifi -cally for this purpose.
The pragmatic initial support by SECO and SDC made the launch considerably easier for responsAbility. Further fi nancial support from the state – the seed investments in the fi rst private equity fund as well as the subsidies for the promotion fund – served to diversify into the agricultural and renewable energy sectors, with which the range of development investments achieved the necessary breadth and depth. Therefore, responsAbility can be rated as a successful public-
27
private partnership.
5 OUTLOOK
Development investments have most recently been experiencing another boost. The global development agenda (UN Sustainable Development Goals), adopted in September 2015, as well as the climate change agreement that was concluded in Paris shortly afterwards, urgently require the private sector for the fi nancing. The fi nancing requirements to achieve the Sustainable Development Goals alone are estimated at USD 1.4 trillion annually. At least half of these investments must be fi nanced by the private sector.17
“Challenges currently posed by climate change pale in signifi cance compared with what might come.”
Mark Carney, governor of the Bank of England;
London, September 2015
28
There is hardly any private fi nancing source large enough to cope with this scale of funding. One exception is the private investment market. Today, about USD 75 trillion is institutionally managed around the world, almost two-thirds of which originates from private asset management (the HNWI and “affl uent” seg-ments) and one-third from institutional investors (pension funds and insurance companies).18 According to the same source, these assets are increasing at an annual rate of about 6 %. The Swiss fi nancial industry alone manages USD 6.7 tril-lion in assets, which could be mobilised with market-oriented arguments.19
Private fi nancing requires a risk-return profi le that can survive in the market against conventional investments. There is evidence today that a risk-weighted return over a time horizon of several years can be achieved. The evidence was pro-duced by innovative thinkers in the Swiss fi nancial industry with the coordinated support of the Swiss State Secretariat for Economic Affairs (SECO) and the Swiss Agency for Development and Cooperation (SDC). In addition, it was also shown that the development investment model is scalable internationally. Today, the industry invests USD 9 billion in Switzerland alone, which is equal to a third of all global development investments.20 Professional structures thus created the foun-dation for development investments to play an even greater role in the future.
Given the global momentum, there should now be a solid increase in development investments. The discussion about development fi nancing should amount to more than just an argument about expenditure of 0.4 % or 0.48 % of gross national income, as is currently the case in Switzerland. This debate fails to recognise fundamental trends both in developing countries and in the private investment market. What matters far more is what additional funds can be mobilised from the private investment market. For this, the regulatory and tax conditions are crucial. Both impede the private investor today in many countries, where they run the risk of falling behind other, more visionary markets. Following Luxembourg’s resolute example, London has already become active without having a comparable track record.
Long-term thinking, subsidiarity and scope for private initiative could provide development fi nancing with new impetus. Today, the world community is looking for fi nancing models. In the last 15 years, responsAbility has developed a model that holds its own in the market.
“Countries develop from within. (…) Apart from trade, there are a lot of other things that we could do without directly getting involved in the country. (…) I would say that the number of people affected by poverty has fallen from 2 billion to 1 billion in just three decades. That is the result of capitalism, globalisation and the proliferation of markets.”
Angus Deaton, winner of the Alfred Nobel Memorial Prize in Economic Sciences; Interlaken, June 2016
17 Sustainable Development Solutions Network, 2015: Investment Needs to Achieve the Sustainable Development Goals
18 PricewaterhouseCoopers, 2014: Asset Management 202019 Swiss Bankers Association, 2014: The Swiss Financial Centre20 Swiss Sustainable Finance (SSF), 2016: Swiss investments for a better
world – The fi rst market survey on investments for development
The objectives of the global devel-opment agenda and the Paris cli-mate change agreement can only be achieved with the help of the private investment market. There is evidence today that development investments can achieve a risk-weighted return over a time horizon of several years. The regulatory framework must be im-proved further to maintain the current momentum and provide development investments with new impetus.
29
12 investment productsInvestors: KfW, SECO, DEZA, DOEN Foundation, SNV Netherlands Development Organisation,
HELVETAS, IFC, FMO, OeEB, Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety (BUMB), Department for Business, Energy and Industrial Strategy (BEIS) and Ministry of
Foreign Affairs of Denmark DANIDA
ShareholdersRepresentatives of the Swiss financial market – Bank Baumann & Cie, the Raiffeisen Group, the Swiss Re
Foundation, Bank Vontobel, Alternative Bank Schweiz, others . Up to 30% are owned by employees
responsAbilityInvestments AG
responsAbility: Shareholders and investors
In 2003, responsAbility launched an initial investment product with a volume of In 2003, responsAbility launched an initial investment product with a volume of USD 5.8 million, nearly half of which was funded by the Swiss State Secretariat USD 5.8 million, nearly half of which was funded by the Swiss State Secretariat for Economic Affairs (SECO). 15 years later, responsAbility manages more than for Economic Affairs (SECO). 15 years later, responsAbility manages more than USD 3 billion in development investments. USD 3 billion in development investments.
responsAbility has consistently expanded its range of investment products over responsAbility has consistently expanded its range of investment products over the years. Today, the company manages 12 investment solutions in the fi nancial, the years. Today, the company manages 12 investment solutions in the fi nancial, energy and agriculture sectors, which invest in fi xed-interest securities as well as equity investments. Some funds in certain markets such as Switzerland are registered for public distribution and thus available to private customers. registered for public distribution and thus available to private customers.
responsAbility employs about 250 people in 10 offi ces around the world: Bangkok, responsAbility employs about 250 people in 10 offi ces around the world: Bangkok, Geneva, Hong Kong, Lima, Luxembourg, Mumbai, Nairobi, Oslo, Paris and Zurich. Geneva, Hong Kong, Lima, Luxembourg, Mumbai, Nairobi, Oslo, Paris and Zurich.
responsAbility Investments AG is authorised by the Swiss Financial Market responsAbility Investments AG is authorised by the Swiss Financial Market Supervisory Authority (FINMA).
responsAbility Management Company SA in Luxembourg is authorised as an responsAbility Management Company SA in Luxembourg is authorised as an Alternative Investment Fund Manager (AIFM) by the Commission de Surveillance Alternative Investment Fund Manager (AIFM) by the Commission de Surveillance du Secteur Financier (CSSF).
RESPONSABILITY – THE SUCCESS STORY
responsAbility Investments AG is a leading global asset manager in the area of development investments and offers private as well as institutional investors professionally managed investment solutions.
Source: responsAbility Investments AG, 2016
30
RESPONSABILITY IN FIGURES (2016)
USD 3.1 BILLION
ASSETS UNDER MANAGEMENT
USD 1 BILLIONINVESTED
97 COUNTRIES 546
FINANCEDCOMPANIES6 BUSINESS AREAS:
3 SECTORS AND 2 ASSET CLASSES
700TRANSACTIONS IN
31
the international discourse runs along these lines. In those days, however, the concept of public-private partnerships still wasn’t accepted everywhere. We had to safeguard the subsidiarity, in other words show how the public con-tribution could be justifi ed and how much added value it would generate.
There was some internal resistance for risk management reasons, in particular. A direct investment brings with it certain risks in terms of capital loss and reputation. There was also some dis-cussion about whether the state was permitted to act in the role of risk capi-tal investor – even though it obviously involved a good cause that fi t the strat-egy perfectly from our point of view.
We had to do a lot of persuading inter-nally because development aid wasn’t being invested locally in a country, but rather through the vehicle of a Swiss association. Indeed, responsAbility was still an association at that time. The question also arose as to why a young company like responsAbility was
How did the cooperation between SECO and responsAbility come
about in 2003?
Already in 1996, SECO tried to boost the involvement of the private sector and private sector instruments in its credit facility. But the few private investment solutions barely had any history of success, and development investments were still just a vision. However, SECO saw the potential and was prepared to make an initial investment when responsAbility enquired. Therefore, the decision in 2003 was not merely oppor-tunistic, but part of SECO’s strategy. There was only one Swiss fund man-ager qualifi ed for this investment and it was able to bridge the gap between the Swiss capital market and the SME market in SECO’s partner countries.
What were the obstacles?
Today, cooperation with the private sec-tor is barely questioned anymore and
the suitable partner in a country like Switzerland, where there were prestig-ious major banks and asset managers.
At the time, we saw our investment as having the potential to support the emergence of a new investment cate-gory, which was supposed to enhance the existing range of products while promoting economic development in our target countries.
Did things work out for SECO?
Yes. SECO was able to try out a relevant and capable partner in responsAbility. The capital mobilisation factor was enormous and the effect was noticeable in the entire market, beyond responsAbility’s involvement. respons Ability and SECO also still share the vision today to establish a new investment theme in the market and build up a new investment category. This vision is also supported by Swiss Sustainable Finance.
Conversation with SECO’s Ivo GermannIvo Germann is Head of Operations in the Economic Cooperation and Develop-ment Division of Switzerland’s State Secretariat for Economic Affairs (SECO). He witnessed SECO’s investment in responsAbility’s fi rst microfi nance fund in 2003. The cooperation became a milestone for responsAbility, which was founded in the same year. It was also a major step forward for SECO, which invested through a private provider for the fi rst time. Ivo Germann looks back and also speaks about how public-private partnerships should work in the future.
“WE RECOGNISED THE POTENTIAL TO CREATE A NEW CATEGORY OF INVESTMENT.”
32
fi nancial industry is well-positioned to benefi t from this development and to actively shape it. People are also beginning to realise internationally that Switzerland is leading the way in this fi eld.
This requires a suitable environ-ment. What developments do you
expect on a regulatory level?
There is a great need for action in this regard. The fact is that the regulatory environment must become more target- oriented and useful. With respect to one development fund that SECO helped to fi nance, those in charge consciously tested a structure with a Swiss legal form. But there were high administrative hurdles and the regu-lators lack the expertise. That makes such investments diffi cult and it takes a long time to implement them. If the successor funds are then no longer domiciled in Switzerland, but in Luxem-bourg, for example, SECO appreciates the business decision, but considers it
We have a clear belief that a good sus-tainable investment has an effect on development. It also may and should generate a fi nancial benefi t. The demonstration effect is only achieved when the state later ends its involve-ment by exiting the investment.
From SECO’s point of view, microfi nance in 2003 was rather a fringe area, while the focus was on small and medium- sized enterprises. But we knew the meaning of fi nancial market develop-ment in our target countries. There were also indications that microfi nance was resonating with investors. Now we are observing with interest how responsAbility is targeting the areas of agriculture and renewable energies in the next phase.
Where is the journey heading for development investments?
In Swiss Sustainable Finance’s fi rst panel discussion back in 2014, I had a key moment: Not only were the “usual
suspects” from the sustainability fi eld sitting on the discussion panel, but also chief fi nancial offi cers and investment strategists from prestigious banks.
The conditions for sustainable, environ-mentally friendly and socially com-patible investments are good today. The framework has been set with the UN Sustainable Development Goals (SDG) and the results of COP21, the UN climate change conference in Paris. We know that we can’t solve the problems through public funding alone. If we want to make more progress in the area of poverty reduction, public-private partnerships are required.
What role does the Swiss fi nancial industry have in this regard?
Swiss partners manage a third of all global investments in the fi eld of devel-opment investments – that makes the Swiss fi nancial industry relevant. SECO expects development investments to become more important. The Swiss
Ivo Germann (left), Head of Operations South / East at SECO, speaking with Christian Etzensperger, Head Corporate Strategy and author of the publication
33
as a big step backwards from a wider perspective. It is necessary to embed this awareness in dialogue between fi nancial operators and regulatory authorities more and more, and it is necessary to actively seek possible improvements together. SECO is mak-ing an active contribution to this.
The private sector is becoming more important for SECO’s work. How do
you intend to strengthen cooperation with private industry?
The strengthening of public-private partnerships is very important for SECO’s economic cooperation. SECO is subsidiarily active in this regard, meaning that we never lose sight of the basic principle that the state, above all, creates the framework conditions so that a market can establish itself. Entre-preneurship creates innovation.
SECO increasingly opens meetings with multilateral partners (such as the World Bank, IFC or EBRD) and invites private operators like responsAbility to take part in the debate. That also facilitates the joint work on innovative solutions. Within the context of public tenders, I motivate my people to increasingly identify innovative solutions. Instead
of spending weeks in the offi ce in Bern of spending weeks in the offi ce in Bern poring over terms of reference for a poring over terms of reference for a mandate, a call for proposals can out-mandate, a call for proposals can out-line the problem and then we take a line the problem and then we take a look at what sort of innovative ideas look at what sort of innovative ideas the market brings in.
At the moment, we are thinking about At the moment, we are thinking about launching a competition for ideas with launching a competition for ideas with a view to the new global credit facility. a view to the new global credit facility. In this competition, the asset managers In this competition, the asset managers would present their projects in the area would present their projects in the area of “technical assistance” and these of “technical assistance” and these would be evaluated in a competitive would be evaluated in a competitive process.
What does SECO expect from the private sector?
Through the experience with respons-Through the experience with respons-Ability, we were able to gain enormous amounts of knowledge for the struc-turing of public-private partnerships. In the future, as well, this exact ques-tion will be asked: Where is public funding needed and where isn’t it? respons Ability is a positive example: Here, the idea of subsidiarity is already so well-entrenched in the private partner that it carefully considers how start-up support from the public sector can be used. If a fund is successful, the subsidies are rapidly removed and the
state isn’t needed anymore. respons-Ability also sees things this way and that is an ideal situation.
From SECO’s point of view, it would be positive if the private operators were to consider the frame of reference with SDG and COP21 and give some thought to how we will generate such public- private partnerships in the future as well and how SECO can serve as a cat-alyst in the process. The key objective is to mobilise private funding for our target markets.
The private sector is more agile and innovative than we can ever be. However, the objectives must also fi t together. SECO considers agriculture and energy to be relevant priorities and energy to be relevant priorities in developing countries, and fi nancial in developing countries, and fi nancial sector development remains a pillar of the federal government’s international cooperation strategy. In this sense, responsAbility has certainly laid the right foundations for further growth in the coming years.
Christian Etzensperger spoke with Ivo Germann.
“In the future, as well, this exact question will be asked: Where is public funding needed and where isn’t it? responsAbility is a positive example: Here, the idea of subsidiarity is already so well-entrenched in the private partner that it carefully considers how start-up support from the public sector can be used.”
Ivo Germann, Swiss State Secretariat for Economic Affairs (SECO)
34
CHRISTIAN ETZENSPERGER Head of Corporate Strategy
Master’s degree in Economics (Fribourg, Madrid) and MSc (Distinction) in Eco-nomic Development from University of Glasgow Adam Smith Business School. Chartered Alternative Investment Chartered Alternative Investment Analyst.
15 years of professional experience in banking, asset management, emerging market fi nance and international devel-opment, specializing in research, busi-ness model analysis, risk management and strategy with Credit Suisse, Vonto-bel, and responsAbility. Established the respons Ability Research Department and has published extensively on devel-opment fi nance, sustainability, and frontier markets.
DANIELLE BRASSELSenior Research Analyst
Master of Arts in Banking and Finance and B.A in Business Administration from the University of St. Gallen.
More than ten years’ experience in the fi nancial sector, including corporate fi nance advisory, private debt and private equity. Covering emerging mar-kets for more than four years, including two years at HSBC and two years at the European Bank for Reconstruction and Development.
AUTHORS
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DISCLAIMER
This document was produced by responsAbility Investments AG and / or its affi liates with the greatest of care and to the best of its knowledge and belief. However, responsAbility Investments AG provides no guarantee with regard to its content and completeness and does not accept any liability for losses which might arise from making use of this information. The opinions expressed in this document are those of responsAbility Investments AG at the time of writing and are subject to change at any time without notice. If nothing is indicated to the contrary, all fi gures are unaudited. This document is provided for information purposes only and is for the exclusive use of the recipient. It does not constitute an offer or a recommendation to buy or sell fi nancial instruments or services and does not release the recipient from exercising his / her own judgment. This document may not be reproduced ei-ther in part or in full without the written permission of responsAbility Investments AG. It is expressly not intended for persons who, due to their nationality or place of residence, are not permitted access to such information under local law. Neither this document nor any copy thereof may be sent, taken into or distributed in the United States or to any U. S. person. It should be noted that historical returns and fi nancial market scenarios are no guarantee of future performance.
Texts: Christian Etzensperger, Danielle Brassel, responsAbilityEditing: Anke Bryson, Alain VannodPhotography: Willy SpillerDesign and layout: Liebchen + Liebchen GmbH
responsAbility Investments AGJosefstrasse 59, 8005 Zurich, SwitzerlandPhone: +41 44 403 05 00www.responsAbility.com
© 2017 responsAbility Investments AG. All rights reserved.
ABOUT RESPONSABILITY
responsAbility Investments AG is one of the world’s leading
asset managers in the fi eld of development investments and
offers professionally-managed investment solutions to private,
institutional and public investors. The company’s investment
vehicles supply debt and equity fi nancing to non-listed fi rms in
emerging and developing economies. Through their inclusive
business models, these fi rms help to meet the basic needs
of broad sections of the population and to drive economic
develop ment – leading to greater prosperity in the long term.
OUR OFFICES
ZURICH (HEAD OFFICE) – BANGKOK – GENEVA – HONG KONG – LIMA –
LUXEMBOURG – MUMBAI – NAIROBI – PARIS – OSLO
www.responsAbility.com
