OPIC eyes mandate change with direct equity investments

Passing the BUILD Act would allow the US agency to invest directly into private companies, shifting from its loans-only mandate.

Legislation to allow Overseas Private Investment Corporation to make direct private equity investments could be approved as soon as the end of this year, in a move that would widen the US agency’s scope for global investment, according to an executive.

David Bohigian, executive vice-president at Overseas Private Investment Corporation, is optimistic that Congress will make a decision before finishing its legislative session at the end of 2018.

“One of the biggest hooks for this crowd, in the Emerging Markets Private Equity Association, is that equity piece,” Bohigian said in an interview with sister title pfm on the sidelines of EMPEA’s 20th Annual Global Private Equity Conference in Washington, DC on 16 May. “It is a major stumbling block for us. Legislation passing to be able to unlock that would be huge.”

OPIC was founded in 1971 as an independent agency with the aim of furthering US foreign policy and national security. Its investment in emerging markets is limited to financing, in the form of direct loans and guarantees, and providing political risk insurance of up to $250 million. In terms of private equity, capital is limited — as mandated by Congress — in the form of a non-amortising loan to the fund. In the past few years, for example, OPIC has given loans to foreign lenders that use the borrowings to cover mortgage lending and project financing, in countries such as Colombia and Jamaica.

Bohigian wouldn’t say what kind of returns the DFI would seek, but noted that it would return whatever profit it makes from its direct equity investments back to the US taxpayer. OPIC has returned money to the US Treasury for the last 40 years. In 2017, it turned a profit of $262 million — which OPIC says is used toward reducing the country’s budget deficit. The agency brought in $3.8 billion in new commitments last year, bringing its total of global assets at more than $23 billion.

Bohigian added that while OPIC’s team has been largely focused on making loans, the team is talented enough to make the transition to equity investments. It had 271 employees as of last year.

Carol Danko, managing director of communications at OPIC, said that the equity authority and a higher cap on investment the agency will help it remain competitive. Other DFIs such as the International Finance Corporation, the finance arm of the World Bank, already have an advantage over OPIC by investing directly in companies’ equity and through private equity funds.

Investing in emerging countries, from Mexico and Chile in the Western Hemisphere to Myanmar and India in the East, presents a tremendous opportunity for private equity firms — and for DFIs like OPIC. While developed markets such as those in the US and Europe account for 83 percent of global PE investment, emerging markets — which make up 45 percent to 55 percent of the world economy — get only 17 percent of PE money, said The Carlyle Group co-founder David Rubenstein at the EMPEA conference.

The US has a high degree of interest in developing countries, Ray Washburne, chief executive officer of OPIC, said at last week’s EMPEA conference. The agency has 675 projects in 90 countries, such as small business lending in cooperation with the Bank of India and energy programs.

Washburne said that the US tries to get a multiple of two to three times its investment. While some lenders can offer debt of just two to three years for projects in developing countries, OPIC can give loans of 15 to 25 years, and that can be important in expensive and long-term building projects, he noted.

The bill to change the mandate of OPIC was introduced in February as the Brownfields Utilization, Investment, and Local Development Act of 2017, or BUILD Act. The new legislation also proposes changing the name of OPIC to US International Development Finance Corporation, which clearly defines itself as a development finance institution. The bill calls for $96 million in administrative expenses and $38 million in additional programming funds.

Part of the wording in the bill states that the agency “may make and fund commitments to purchase, invest in, make pledges in respect of, or otherwise acquire, equity or quasi-equity securities or shares or financial interests of any entity, including as a limited partner or other investor in investment funds”, according to the bill.

In keeping with what OPIC says is President Trump’s plan to streamline government, the bill also seeks to merge into OPIC’s new entity some of the functions of another US development agency, namely USAID’s Development Credit Authority, USAID’s Enterprise Funds, and USAID’s Office of Private Capital and Microenterprise.

For Bohigian, who joined OPIC in August, the ability to tap into equity investments directly allows him to tap his experience as a venture capitalist. His background also includes serving as part of the core management team of hedge fund firm Bridgewater Associates and as assistant secretary of trade under President George W. Bush from 2005 to 2009.

“This time last year the talk of this conference was that OPIC was on the cutting room floor of the budget because people were expecting that OPIC might be going away,” Bohigian said.

“So, it’s really a turnaround story in a lot of ways. Not only have we seen the administration and Congress work together to strengthen OPIC, but now you’ve got this generational possibility of transforming how we do development and finance in this country,” he added. “Across the US government and across the world, we’re constantly trying to share deal flow and understand how we can invest and support US foreign policy and development.”