TRADE NOT AID

After launching InReturn's East Africa Fund in late June this year, managing partner Steve Otto is pleased with the way fundraising is going. “Despite negative sentiment in the market as a whole, there is still a lot of interest in Africa,” he told PEI.

InReturn Capital is a joint venture between Dutch and Kenyan enterprises and Dutch development organisation Cordaid. Its InReturn East Africa Fund is aiming to raise up to €15 million ($22 million) to create sustainable employment and economic growth by investing in small and medium-sized enterprises in East Africa.

InReturn's goal of boosting employment in these developing nations is inextricably tied to the need to generate returns on investors' money.

“The fund is targeting a financial return of between 10 and 15 percent,”Otto told PEI.“ This is about trade not aid. We need to make sufficient returns for investors to invest. We also want to create sustainable businesses and therefore jobs. Aid is not sustainable.”

At the time of writing, InReturn had raised around half of its original €10 million target and, with the remainder of the year to raise commitments, was revising its ceiling upwards. “We are now looking at increasing the ceiling on the fund to between €12 million and €15 million,” said Otto.

The fund has been marketed to institutions and private investors, with the latter, a mix of Dutch and Kenyan businessmen, making up most of the commitments so far.

In marketing the fund Otto found major differences in the perception of risk, with Western investors tending to see more risk in the proposition than local business people.

On the institutional side, Dutch bank Rabobank has joined cornerstone investor Cordaid.

Despite the positive start, Otto is far from complacent about the task of marketing the fund.“ General market sentiment is not helping our efforts. And finding investors is never an easy task.”

CDC RE-EMPHASISES COMMITMENT TO POOREST
CDC, the UK government-backed emerging market fund of funds investor has re-stated its goal of helping the world's poorest nations out of poverty. Chief executive Richard Laing told PEI: “We do not provide aid and we do not want to subsidise these markets. But we can take on risk [that other investors do not] and we will decrease poverty by generating wealth. We have been pioneers and we want to stay pioneers.” In a recent radio programme broadcast by the BBC, the group's use of UK taxpayers' money to back a Nigerian shopping centre was held up as an example of a project only likely to benefit the country's affluent.

LEACH JOINS IMPETUS
John Leach, head of Barclays Capital's financial sponsors team, has joined the UK venture philanthropy outfit, Impetus Trust. Leach, who joins as an investment director, will work three days a week at Impetus on a pro bono basis, while continuing to advise Barclays Capital. Prior to his appointment at Impetus, Leach carried out a number of projects in the not-for-profit sector, including working with an Impetus portfolio charity, Leap Confronting Conflict, on its business planning and fundraising.

BREAKTHROUGH MAKES SIXTH INVESTMENT
Breakthrough, the social investment fund backed by London-based private equity firm Permira, has made its sixth investment, granting UK-based charity Speaking Up £175,000 (€220,000; $328,000). Speaking Up supports people with learning difficulties, disabilities and mental health problems. Breakthrough, currently committing its second fund, provide social enterprises with a combination of funds and business advice. SVG Capital has also invested in the second fund alongside Permira. The latest investment will allow Speaking Up to develop its regional operations and recruit a new director for income. “After making the investment, Breakthrough forms an ongoing relationship with the recipient, in a similar way to a private equity investor, with monthly reporting on various milestones,” said Denise Holle, social investment director at Breakthrough.

ALVARO RODRÍGUEZ CO-FOUNDER AND MANAGING DIRECTOR IGNIA
The self-professed ‘corporate animal’ has joined forces with KKR veteran Michael Chu to bring capital markets to bear on the problem of poverty in Latin America. Suzanne Weinstock recently sat down with Rodríguez to discuss founding the Mexico-based venture firm and why big change demands big returns.

How did IGNIA come about? The past 10 years I've been what I call a corporate animal. But I've had a tremendous passion for fighting poverty. My first job out of business school was at nonprofit ACCION International, now one of the leaders in global microfinance where Michael was my boss. He was at KKR and then went to ACCION as CEO.

Having spent time in the field of microfinance, I believed that the same success could be achieved in other sectors of the economy. But there needed to be a fund as a catalyst to start to develop these businesses. So I went to Michael last year and said, “Look, I'm thinking about an idea for this type of fund.” And he said, “That's exactly what I'm thinking about too.”

What type of investments do you seek out?

We have to meet two criteria: returns and social impact on the “base of the pyramid” in Latin America which is basically the 70 percent of the population in the lowest socio-economic segment.

We see many opportunities in Peru, Columbia, Guatemala and Honduras which have relatively stable macro-economics, the base of the pyramid markets are large and under-served, and those who serve the markets are inefficient.

Why are returns central to achieving social change?

The logic is the following: the problem of poverty is very large; in order to fight poverty you need scale; the only way to reach scale is by attracting commercial funds; and the only way to attract commercial funds is to offer an attractive return based on the risk that is assumed. These returns can be achieved because the base of the pyramid is a huge, under-served market.

Your debut fund held a first close in June on $20.6 million anchored by $10 million from philanthropic investment firm Omidyar Network. Have you begun to attract the traditional LPs you are looking for?

In that first close, we already had capital from traditional for-profit investors and will have more in the second close around the third quarter. We are looking to raise $50 million to $75 million. The help of investors like Omidyar is great but that pool of capital is limited.

What is IGNIA's ultimate goal?

At the end of the day, the mission is fighting poverty. One of the successes in microfinance has been the creation of an industry. We seek to create industries serving the base of the pyramid in sectors like healthcare, education and housing and the only way that this can be done is by developing attractive, scalable businesses which open the eyes of entrepreneurs and attract capital.