FAQs The DFID Impact Fund (managed by CDC)

FAQs The DFID Impact Fund (managed by CDC) No. Design Question: General Questions 1 What type of support can the DFID Impact Fund provide to vehicles selected through the Request for Proposals ( RFP )? The DFID Impact Fund can invest via a range of financial structures, including equity, loans, and guarantees for qualifying proposals. The exact terms of the support will be negotiated on a case by case basis. 2 Is the call restricted to vehicles focused on creating a portfolio of investments? 3 Will the DFID Impact Fund provide grants, technical assistance, or first loss capital to Funds selected through the RFP? Yes, through this call, the DFID Impact Fund seeks to support investment vehicles that are (1) professionally managed, (2) targeting a pool of investments, and (3) raising additional private (non-public) capital from third parties who are interested in making impact investments through financial intermediaries. The DFID Impact Fund is not limited to investing through funds and may invest through other structures such as an investment company, bonds or other corporate vehicles. The use of the term Funds in the remainder of this document is designed to include all the structures mentioned above. The DFID Impact Fund will be paired with a technical assistance ( TA ) Facility to support investees on a competitive basis. The TA is not available to subsidise investments or the ordinary running costs of a fund manager. The decision on disbursement of TA will be taken based on requests submitted by the fund managers and their demonstrated ability to appropriately disburse the TA. The DFID Impact Fund encourages proposals that have grant or technical assistance funding from other sources. Other than the TA as described earlier, DFID Impact Fund will not provide grants, but will make investments that should provide returns consistent with a Fund s strategy. DFID Impact Fund encourages applicants to propose innovative funding structures, which may consider elements of first loss, if these prove instrumental in attracting a larger amount of private capital (from non-public sources of funds). 1

4 Is DFID Impact Fund financing available for stand-alone projects that are Impact Investments? 5 Is a non-profit organization considered an eligible vehicle under this RFP? 6 Currency of the DFID Impact Fund investments-can it be a currency other than GBP? 7 Does the DFID Impact Fund require a fund to raise matching investment from other sources? No. DFID Impact Fund is looking to invest in intermediated and diversified programmes. Yes, a non-profit could be eligible as long as the vehicle fits the parameters of the RFP. The Fund can support investments in all currencies. It is not a requirement for a fund to raise matching investment from other sources in order to receive capital from the DFID Impact Fund. However, we would prioritise investing in proposals that are able to attract matching capital from other sources, preferably private capital. In instances where a Fund receives matching capital from other sources of public capital such as DFIs, the DFID Impact Fund can still be invested as long as it is done on a pari passu basis. In instances where a Fund Manager is seeking to use the DFID Impact Fund capital to subordinate returns to DFIs, it will have to raise matching capital from private investors at the same level as CDC s commitment. In some instances, the DFID Impact Fund will be able to invest on a first-loss basis where such guarantees are required to crowd in other private investors. Such first-loss guarantees will be available in exceptional circumstances where a Fund can provide strong rationale for the need for such guarantees to be offered to private investors. 8 Will funding from the DFID Impact Fund be available if a fund already has DFI funding? 9 What are the financial returns expected from the portfolio of investments? Yes, the DFID Impact Fund capital can be invested alongside other DFIs as long as it is invested on a pari passu basis. Expected returns from investments should be consistent with a Fund s specific strategy. We expect these to vary from Fund to Fund. Individual investments by a Fund should be made at rates that reflect the risk of the transaction and do not distort local financial markets by providing subsidised capital. 2

10 What are the expected targets for development returns? 11 How is The DFID Impact Fund governed? Financing Instruments 12 How does the DFID Impact Fund invest in private equity funds or other investment vehicles? 13 What is the available capital for each investment commitment, and at what point is the DFID Impact Fund funding available? 14 Can the existing portfolio of a Fund and the equity already invested be considered as a matching investment? 15 What structure does the DFID Impact Fund expect Funds to have? The DFID Impact Fund will inject capital into Funds that can articulate and expect to achieve a clear positive impact for the poor in its target geography. This could be achieved through providing improved access to affordable basic goods and services, through enabling improved livelihoods, or through enhanced employment opportunities for the poor. Each of these will generate development returns in different ways. The Fund will be looking for measurable evidence that a fund s investment activities will reach a large number of beneficiaries, and have a meaningful effect on their quality of life. The DFID Impact Fund is managed by CDC Group, the UK s Development Finance Institution. CDC s well-established governance structure and controls will apply to the DFID Impact Fund. The DFID Impact Fund can invest through a variety of instruments including equity, debt and guarantees. It is envisaged that the most likely investment routes used by the DFID Impact Fund will be either as a limited partner in private equity Funds, or by providing loans to permanent capital vehicles. However the DFID Impact Fund welcomes suggestions for innovative and flexible financing options, where such arrangements can help to crowd-in further private sector funding. The DFID Impact Fund is aiming to invest up to a maximum of 15 million per commitment. The intention is that DFID Impact Fund will attract private capital alongside its own funds. The DFID Impact Fund s investment will be committed once CDC has concluded its due diligence. Because the DFID Impact Fund s objective is to catalyse new capital, only new commitments will be considered as matching investments. Private equity funds typically are formed as closed-ended limited partnerships or limited liability companies that are managed by professional private Fund Managers. However, the DFID Impact Fund is open to innovative proposals and intends to be flexible in reviewing the proposed structures. The DFID Impact Fund may participate in a broad 3

16 Does the DFID Impact Fund require that the manager of the Fund, or the Fund itself manager be UK-owned? 17 Does the Fund have to be domiciled in the UK? 19 What tenors are acceptable to the DFID Impact Fund? 20 Will the DFID Impact Fund consider Funds with a shorter term, such as 5-7 years? Would you consider a pledge fund, or other structures? 21 How will the DFID Impact Fund achieve an exit? 22 What are the funding costs associated with the DFID Impact Fund s financing? 23 What are the anticipated fees and expenses to be paid by an applicant for a potential investment from the DFID Impact Fund? 24 Does the DFID Impact Fund expect to participate in the fund vehicle's capital gain? range of fund structures on a case by case basis (e.g., evergreen, hybrid, consortiums, special purpose vehicles, other illiquid long term fund structures). No. No. However, the Fund should be domiciled in a jurisdiction with adequate legal certainty such that CDC Group Plc will be comfortable that its agreements with the Fund will be enforceable in that jurisdiction. The DFID Impact Fund can support Funds with a life of up to ten years. The DFID Impact Fund is open to alternative fund structures as long as there is a valid reason for it. The Fund structure will be taken into consideration in the evaluation of a Fund proposal. The DFID Impact Fund will need to exit all investments within ten years. All loans will require repayment and guarantee instruments will terminate within ten years. Where the Fund makes equity investments, the vehicle into which the investment is made, such as a private equity fund, will need to be structured and managed such that it is wound up ten years (or less) after the Fund s investment is made. The DFID Impact Fund is investing on an Impact first basis. It therefore has no set target for returns or funding costs to cover, but will expect, at minimum, to have its capital returned upon exit. The DFID Impact Fund will not charge the cost of its due diligence to a Fund. Yes, the DFID Impact Fund does expect to participate in a Fund s capital gains. This will be subject to modification in cases where we have agreed to guarantee returns to other investors to crowd them in. It is recognised that whilst the Fund expects to receive at least 4

25 Does the DFID Impact Fund require sponsor support or other credit enhancement? 26 Does the DFID Impact Fund participate in investment decisions of a Fund or the manager of a Fund from commercial perspective? 27 What are the DFID Impact Fund s policy requirements for investments? 28 Are there any countries where a Fund cannot invest? 29 Will there be any other investment or allocation restrictions based on stage, sector or industry? its capital back, a large capital gain may not be always feasible. No the role of the DFID Impact Fund is to share / reduce the risk for other investors. The decision by the DFID Impact Fund management to engage in the investment committee of a Fund or its manager and nature of such participation will be made on a case to case basis during the due diligence process. Given the nascent nature of impact investment as a sector and the ambition of the DFID Impact Fund to be catalytic, we may choose to indirectly participate in investment decisions of some Funds (through external nominees) during the early stages to get comfort around execution of fund investment strategies as proposed. The extent and nature of the DFID Impact Fund s participation will be negotiated during the due diligence stage. Investments must comply with CDC Group s Investment code on environmental, social and governance matters. These include all requirements relating to Know Your Customer and anti-money-laundering rules as well as compliance with good practice on social and environmental issues. A copy of the current Investment code can be found on CDC Group s website at http://www.cdcgroup.com/documents/esg%20publications/code%20of%20responsible %20Investing%20(Final%20Annotated).pdf The DFID Impact Fund capital can only be directed towards investing in businesses that are located in Africa and South Asia (list of countries attached in the appendix). All things being equal, Funds focused on investing in low income countries within these geographies will be given preference compared to Funds investing in lower middle income countries. It is to be noted that only up to a maximum of 15% of the DFID Impact Fund s capital will be available for investing in India through a global or a regional fund structure. Funds investing only in India will not be considered eligible for an investment from the DFID Impact Fund. CDC s Investment code outlines the sectors where the DFID Impact Fund cannot be invested. Latest copy of the Investment code can be found at http://www.cdcgroup.com/documents/esg%20publications/code%20of%20responsible %20Investing%20(Final%20Annotated).pdf 5

30 Does the Fund or its manager need to register the Fund before submitting a proposal? 31 Can a Fund that generates investment return exclusively or predominantly from a commercial revenue stream of land-use carbon projects, which provide local incomes and livelihoods, qualify for support? 32 Is there an upper limit on a Fund's management fee that the DFID Impact Fund would be willing to support? 36 What is the extent of the DFID Impact Fund s participation on Fund advisory boards? 37 Are Funds or managers of Funds that have not historically focused on Impact investing eligible for this RFP? Is the DFID Impact Fund looking to select Funds or managers of Funds on a strict Impact investing line? Or is it open to Funds or managers of Funds that propose innovative approaches to efficiently integrate Impact investing into their existing investment strategy? Questions About the RFP Process In addition, the DFID Impact Fund will not invest in microfinance funds although those will continue to be eligible to seek funding from CDC under its normal course of business. No. The DFID Impact Fund is intended to improve the lives of the poor in low-income countries. Purely environmental objectives are not a priority. Such objectives are catered for elsewhere in DFID s programmes. The DFID Impact Fund will review a Fund s management fee within the context of what is needed to run the fund management activities. The management fee should be at market rate. It should support the operations of the Fund and not be a source of profit. The DFID Impact Fund will generally seek to have a seat on a Fund s advisory board, which amongst other duties would rule on the management of potential conflicts of interest of the Fund or its manager. The DFID Impact Fund seeks to mobilize new capital to the sector with both financial and social returns. The RFP outlines the parameters for consideration. Managers who have been in other areas of investment or other fields of endeavour are welcome to apply; track record will be considered, but applicants entering the impact investing sector for the first time will also be considered. 6

38 Are first-time managers eligible for DFID Impact Fund s financing? 39 Will we be required to submit any additional information? 40 Should our proposal address the RFP questions in the order they are presented in the call checklist? 41 What is the preferred process for applicants who would like to apply for funding for more than one potential Fund? Should the applicant submit two separate proposals or one proposal with detail on both Funds? The DFID Impact Fund welcomes first-time Funds or managers of Funds and new teams to apply for funding through this call for proposals. The DFID Impact Fund will consider the collective and/or individual track records and relevant experience of a Fund s management. After reviewing your proposal, should our due diligence proceed, selected applicants may be asked to: 1. additional questions; 2. Complete a Sponsor Disclosure Report; 3. Visit CDC Group s offices for an interview; 4. Make your staff available for additional detailed due diligence; and 5. Make available to the DFID Impact Fund information regarding past and current portfolio investments, including the opportunity to visit sites and review financial records of selected investments. We would prefer to have the questions answered in the order they are presented in the checklist, but this is not mandatory. Candidates can elect to submit proposals in any form that they wish. If the two Funds are not related in any way, it would seem reasonable to submit two proposals. If the applicant is proposing an umbrella Fund that would provide capital to both Funds, one proposal may be sufficient. 7

APPENDIX- DFID Impact Fund Universe (Eligible Countries, States and Territories) Region South Asia Africa Countries Afghanistan, Bangladesh, Bhutan, India, Maldives, Myanmar, Pakistan, Sri Lanka, Nepal Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros and Mayotte, Congo (Democratic Republic of), Congo (Republic of), Côte d'ivoire, Djibouti, Egypt, Equatorial Guinea, Eritrea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, South Sudan, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, Zimbabwe 8