The World Economic Forum, the group most notable for their annual gathering of economists and business leaders in Davos Switzerland, is promoting a new Blended Finance model of economic growth. Together with the Organization for Economic Co-operation and Development (OECD), the WEF showcased Sarona Asset Management’s successful implementation of the new model at a Blended Finance forum in New York City on 30 October.
Blended finance models seek to increase the flow of private capital into developing countries by improving the risk-return profile for investors through the use of various financial instruments such as capital loss guarantees and profit sharing. Sarona, a private equity firm, is one of the few private investment firms that have already brought such a product to market.
Specifically, Sarona’s private equity fund of funds is supported by USD 14.5 million equity capital sourced from the Canadian Government, and up to USD 87.5 million leverage from the Overseas Private Investment Corporation, the United States’ development finance institution. The Canadian capital provides private investors with first loss protection and profit sharing, while OPIC’s financing offers low-cost leverage. Together, these two sources of capital are designed to enhance investors’ risk-adjusted rate of return and thereby increase the attractiveness of investing in small-to-mid-market companies in developing countries.
Speaking at the New York event, Gerhard Pries, Managing Partner & CEO of Sarona, praised the Canadian Government and OPIC for their initiative: “These government organisations have shown visionary leadership in establishing ground-breaking partnerships that will define the future of private investment in frontier and emerging markets.”
“As proud and grateful recipient of this catalytic capital last year, Sarona has been able to step up its fund-raising efforts significantly, attracting capital from leading institutional investors,” he continues. “This has helped us greatly in realising our mission of delivering superior risk-adjusted returns to our investors within markets where the responsible deployment of capital can lead to very positive social outcomes.”
Mr Pries spoke at the event alongside highly influential leaders, including representatives from the Canadian government.
“Canada is proud of its leadership in the promotion of private-sector led growth in developing countries,” said Christian Paradis, Canada’s Minister of International Development and La Francophonie. “Through partnerships with firms such as Sarona Asset Management, we are successfully applying bold new approaches in leveraging private sector investment and resources and maximising the impact of our efforts to fight global poverty, and build new markets for Canadian trade and investment.”