Fund managers derive solid benefits from DFI investors, so long as the institutions’ dual motivation is well-understood. Drew Wilson reports
Development finance institutions offer real benefits for first-time fund managers. DFIs tend to champion these vehicles, which is particularly welcome in a tough fundraising climate. This year, for example, Falcon House, a debut fund targeting Indonesia that closed on $212 million in October, was backed by the IFC and Netherlands-based FMO.
Once on board, DFIs can help institutionalise the fund, advising the new team on market practices and corporate governance, adds Javad Movsoumov, executive director at UBS private funds group in Singapore.
They also flock to emerging markets. Of the 55 most active DFIs worldwide, roughly 60 percent are invested in the Middle East/Africa region, followed by Asia Pacific (56 percent), according to Private Equity International’s Research & Analytics division.
In those markets, they carry weight. “In politically challenging countries, it can help to have government agencies among your shareholders,” says Hans Christian Jacobsen, a managing director at Vietnam-based PENM Partners, who previously worked at the EBRD for 15 years. “If a dispute arises, you could call on the DFI to give a certain balance in presenting your case.”
Returns are also part of it. Data from the IFC suggests an on-board DFI in a debut fund can help performance.
First-time funds, vintages 2000-2009, brought IFC a pooled return of 25.7 percent; that was well ahead of its investments in repeat funds (10.2 percent) during the same period.