This article appears as part of Private Equity International’s December/January Emerging Markets special supplement.
Overseas Private Investment Corporation’s relaunch as the US International Development Finance Corporation has been delayed due to a lack of approval for funding in Congress, but is expected to be fully funded post-21 November thanks to bipartisan support.
What excites you about the new DFC?
For almost 50 years, OPIC has been helping catalyse private sector capital in some of the world’s toughest places to develop businesses, create stable societies and create stable families. Our total portfolio includes not only private equity but also political risk insurance and project finance.
Previously, OPIC could only make loans to private equity firms, and that made OPIC’s offering a less attractive product than other LPs. As we transition into the Development Finance Corporation, for the first time, the United States will be investing in equity alongside other limited partners into private equity funds. We believe this will allow us to play an even greater role in mobilising private sector capital that meets development and foreign policy goals.
DFC’s budget will be $60 billion, almost double OPIC’s $29 billion budget. We will be able to better meet the demand for longer-term capital that businesses require in less developed and fragile states. We hope to crowd in other institutional investors as well as new managers and partnerships in these areas.
What are DFC’s plans for private equity?
Right now we’ve got a 30-year track record in private equity and have $3.5 billion invested across 45 private equity funds that are absolutely global, and we will continue to build on that at the DFC. Apart from the equity investment, we will also have other tools, like technical assistance and feasibility studies, to help managers. Beyond that, the United States Agency for International Development team joining DFC will be able to provide loan guarantees.
The long-term plan for the DFC is to make direct investments in private companies, but in the short-term, it will commit equity capital to private equity funds.
Will the DFC be active in venture capital?
When I got here two years ago, OPIC was investing only in private equity. With a debt product, when your returns are capped, it doesn’t make economic sense to go into what is perceived as a higher-risk asset class without the promise of additional returns.
However, I thought the risk was worth taking to meet our policy goals. Therefore, a year-and-a-half ago, we launched our venture capital initiative in Silicon Valley, through which OPIC invests in Series B, C and D fundraises.
“For the first time, the United States will be investing in equity alongside other limited partners into private equity funds”
The potential to help grow those companies without taking early-stage technology risk or early-stage operational risk really should help catalyse additional capital and create an entrepreneurial class of small business owners.
For instance, one of our investments is in Iron Pillar in India. One of their portfolio companies is creating an online platform for small businesses that will help entrepreneurs reach one billion of India’s audience. That’s everything from a bicycle repair shop to camel tours that will be online for the first time ever.
What is your take on big asset managers launching their own impact funds?
We welcome the rise of more money coming into the impact sector where we have been operating for a long time. When I think about the catalytic power of major funds coming in, not only from the power of their capital investment, but the fact they’re able to work with major institutions on an impact theme, it really shows the maturation of the market.