It has been a hallmark year for the US government’s Overseas Private Investment Corporation (OPIC), one of the main bilateral development finance institutions (DFIs) in the world.
Last month, OPIC announced its investment portfolio reached a record $21.5 billion, including 11 percent, or $2.37 billion in private equity. It has also been exploring a small pilot programme for venture funds this year.
Founded in 1971 by the US Congress with $106 million in seed funding, OPIC has committed $4.1 billion to 62 private equity funds in emerging markets.
In December 2015 OPIC made its largest single commitment of $200 million to private equity impact fund LeapFrog Investments, pushing the fund manager’s aggregated pool of commitments past $1 billion.
To help put this in perspective, OPIC president and chief executive officer Elizabeth Littlefield updated Private Equity International on the institution’s recent activities and explained its private equity allocation.
What does your new venture capital programme consist of?
We are looking at the US venture capital funds that deepen US technologies in emerging markets – more specifically, funds that transfer US technology and innovation to advance development in critical development sectors globally. The pipeline of US patented technologies in areas such as clean energy, health and agriculture technology would leverage OPIC capital to spread these innovations across those developing countries that could best apply them to advance sustainable economic development in their local markets.
OPIC is also targeting US and emerging market venture funds investing in the development sectors of digital revolution that expand access and reduce the cost of goods and services for low- and middle-income, and bottom-of-the-pyramid consumers.
What else has OPIC been busy with in the past year?
We are very proud that last year we topped a record $21.5 billion in portfolio, marked our sixth year of committing about $1 billion to renewable energy each year and did this while consistently returning money to the taxpayer.
Specifically, in the private equity space, last fiscal year, we committed $546 million to five funds: Abraaj Growth Markets Health Fund, Gazelle Finance Fund, Falcon Mezzanine Partners Africa Fund, Sarona Frontier Markets Fund III and ISquared Asia Aggregator Fund.
How do you measure and track the ‘impact’ component of the funds you invest in?
Each active project receives a self-monitoring questionnaire annually, and we work hard to ensure a strong response rate of about 90 percent. In addition, OPIC conducts both random and risk-based monitoring on a number of projects each year. The total number of risk-based and random monitoring trips vary from year-to-year; last year we conducted 22 risk-based on site assessments and 17 random on-site assessments.
Such assessments might reveal, for example, that a portfolio company of a private equity fund is not meeting the health and safety standards for its workers at a factory, or that there was an unexpected pollutant being produced by a farming operation that could be damaging to the surrounding habitat. In those cases, we’d work with the client to introduce mitigation measures. We hear from our clients that the investment OPIC makes in these social and environmental standards is appreciated as it averts risks, augments the positive development impact as well as the value of the investment.
How do you see the overall impact investing sector shaping up in 2017?
Impact investing, whether narrowly or broadly defined, is the talk of the town from Wall Street to Seattle and from Washington to Vatican City. We are very excited about the new products and windows and projects OPIC has launched in the impact investing space in recent years.
That said, by most people’s definition today every one of OPIC’s 600 or so investments is an impact investment. Everything we do is designed to have a positive development impact and is designed to be financially viable. Today, the demand for financing in project finance, in private equity, even in working capital in developing countries so vastly exceeds our ability to serve it; we could grow at break-neck speeds and never catch up with it.
Which sectors do you expect to be some of the most active going into 2017?
We continue to see a lot of interest in renewable energy because investors see it as profitable and a rapidly growing sector in emerging markets. The information, communication and technology (ICT) sector is also booming and has a powerful impact on development. The third area we’re seeing more interest in is financial services – more specifically, financial inclusion such as microfinance, small-to-medium enterprise lending and particularly tech-enabled finance like mobile banking.