CDC Capital Partners, the UK emerging markets investment fund formerly known as the Commonwealth Development Corporation, has announced a new strategic direction following the government’s decision last week to abandon plans to privatise the agency and the announcement of the resignation of its CEO Alan Gillespie.
The Labour government had originally earmarked CDC as the first candidate for its public private partnership (PPP) policy of introducing private capital into what had previously been publicly funded bodies. The government had planned to sell up to a 60 per cent stake in the fund, which would have generated invested capital in excess of £500m. However International Development Minister Clare Short has since acknowledged that adverse market conditions made such a move unworkable.
Speaking in today’s Financial Times, Gillespie said the fund would transform itself over the next year into a cluster of specialised equity funds focusing on specific sectors and countries, with private investors invited to participate.
Gillespie said the funds would target net returns of around 15-18 per cent mark, some way below the original targets of around 25 per cent announced by CDC when privatisation of the agency was being mooted. The new targeted returns are certainly more in keeping with other emerging market funds.
The move away from privatisation has played a large part in Alan Gillespie’s decision to resign from his post of chief executive. Gillespie, who will step down in November, had originally planned to lead the organisation through to privatisation.
In recent years, CDC has come in for sustained criticism from MPs questioning the agency’s shift towards being a for-profit organisation. The fund, which manages government loans worth a total of £755m and is wholly-owned by the Department for International Development, has been accused of seeking ‘safer’ investments in wealthier countries – including Canadian and US investments – compromising the original aim of committing funds to basic investments in the world’s poorest countries.
Of equal concern to MPs has been the sharp fall in performance by the fund. The fund failed to deliver its target returns and instead saw mounting losses from its investments and increased operating costs, despite a raft of cost cutting measures undertaken following Gillespie’s appointment. The agency’s most recent figures revealed negative returns of minus 10.3 per cent, and in the year ended 31 December 2001, revenue fell from £131.6m in 2000 to £87.7m in 2001.
The fund has recently sought to arrange co-investments from private investors. Earlier this year, CDC committed $70m to acquire Entergy Corp.'s stakes in three investor-owned power businesses in Latin America. Scudder Latin American Power Fund II acted as co-investor for this $135.5m transaction. Since 1997, CDC has managed to attract $500m in co-investments from private investors.
CDC Capital Partners is currently active in over 50 emerging markets around the world primarily in Latin America, Africa, South Asia and Asia Pacific. It usually invests between $5-100m when investing.