The first portfolio secondary transaction by BII is part of a strategy to mobilise more investment in emerging markets by de-risking and encouraging capital flows into countries where funding is in short supply.
Blue Earth Capital, a Swiss-based impact investor, has agreed to acquire part of the stakes held by British International Investment (BII) in three African and Asian funds, in a pilot for a BII strategy seeking to make private investment in emerging markets more attractive.
This is the first portfolio secondary transaction by BII, the UK’s development finance institution (DFI), and is intended to help drive the development of a stronger secondaries private equity market in developing countries. Currently, the smaller size of the investable market and perceptions of higher risk in these countries tend to deter investors from entering the secondaries market. By reducing risk for investors through access to an established DFI-backed fund portfolio, BII hopes to entice them to invest.
John Owers, director and head of fund solutions at BII, said the transaction was a test of new ways to encourage investors already active in emerging economies to allocate more capital, and that this in turn should encourage new investors into the secondary market for funds.
“This will help our fund managers build a diverse investor base and reduce their dependency on DFIs,” he said.
BII told Impact Investor it was selectively exploring other secondary transactions where it considered there was an opportunity for capital mobilisation.
Nicolas Muller, Blue Earth’s managing director and head of funds and co-investments, described the transaction as an innovative approach for blended finance. “BII took the initial investment risk, and Blue Earth is providing access to its clientele via a diversified portfolio of high-quality impact assets in emerging markets,” he said.
The details of Blue Earth’s investment were not revealed, but BII said the DFI would retain a “significant stake” in each of the three funds and continue to be actively engaged through its position on the funds’ advisory committees. BII plans to re-invest capital resulting from the deal into further impact investments in emerging markets. It stressed that fund investing remained a central pillar of its investment and impact strategy.
African and Asian funds
The three acquisitions by Blue Earth are in funds that BII said were among its strongest for both impact and commercial performance.
Aavishkaar Goodwell India Microfinance Development Company II is a long-running fund established by Aavishkaar Capital that invests in and supports enterprises active in India’s microfinance sector.
Novastar Ventures Africa Fund II provides venture capital to companies seeking to improve access to goods, services and opportunities for consumers, producers and suppliers in Africa. One example is mPharma, a Ghanaian start-up, which aims to improve access to medicines and medical treatment by converting basic pharmacy networks into state-of-the-art primary and community care infrastructure.
The third investment is in Adenia Capital Fund IV, managed by Adenia Partners, which takes controlling stakes in companies in sectors such as agriculture, business services, and manufacturing in Africa.
Blue Earth Capital was founded in 2015 by Urs Wietlisbach, a co-founder of Partners Group, and is owned by his Blue Earth Foundation. In January it announced that its Blue Earth Climate Growth Fund had exceeded its $300m (€279m) target, closing at $378m. That fund aims to support the ‘missing middle’ of European and North American companies between venture and buyout that are accelerating efforts to reach net-zero, improving climate change resilience and promoting a circular economy.
BII has also made an active start to 2024, announcing in January a $13.5m commitment to the South East Asia Clean Energy Fund II, managed by Clime Capital, as well as a partnership with the Asian Development Bank to finance up to $100 million of green trade transactions in Asia and the Pacific. Additionally, BII said in January it had made a $40m commitment to Apis Growth Markets Fund III, a new fund managed by UK-based private equity firm Apis Partners, which invests in digital financial services companies.
