The United Kingdom’s CDC Group plc, the UK government backed private equity emerging markets fund-of-funds investor, is investing USD 30 million in a new microfinance hedge fund run by New York-based Minlam Asset Management LLC (MAM), an investment firm for private investors. Called Minlam Microfinance Offshore Fund, the hedge fund will provide local currency credit to microfinance institutions (MFIs) operating in emerging markets across Central & South America, Asia, CIS & Eastern Europe, and Africa.
MAM provides credit to MFIs in their local currency, rather than in the currency of the investor, thereby limiting the MFIs exposure to foreign exchange risk. US federal regulations prohibit MAM from publicly disclosing the investments of the firm’s clients, leaving the size of the fund unknown, but according to the Financial Times, the fund has already raised USD 40 million, which includes money from private equity investor John Muse, a founder of the firm Hicks, Muse, Tate & Furst (now known as HM Capital Partners LLC).
In order make get a loan from Minlam, a MFI must have a loan portfolio of at least USD 1 million, be operationally self-sufficient, have less than 5% of its portfolio at risk within the last 30 days, and have independent governance and strong management.
CDC Group was established in 1948 by the UK government to strengthen the economies of the former UK colonies by providing finance for businesses. Since then it has expanded its mandate to invest in poor countries beyond the Commonwealth and has focused exclusively on equity investments since 1997. The group has net assets of USD 3.2 billion (GBP 1.6bn) and targets at least 50% of investments at sub-Saharan Africa and South Asia.
The commitment to the Minlam Fund takes CDC’s overall investment in microfinance-related funds to USD 42.7 million since 2004 and is the biggest investment so far for CDC in the microfinance arena.
Since this announcement, it has been rumoured that CDC will be floated on the London Stock Exchange after Morgan Stanley, the financial services provider, prepared a report on the Group’s strategic options. Reports in the UK press added that a partial flotation is the most likely option, with the government diluting its holding to a minority stake and giving CDC a market value of USD 4.1 billion to 5.1 billion (GBP 2 billion to 2.5 billion).
Amy Rennison, MicroCapital writer
Additional Sources:
HedgeFund.net:
http://www.hedgefund.net/publicnews/default.aspx?story=7956
Financial Times:
http://www.ft.com/cms/s/0/60b8becc-7c4c-11dc-be7e-0000779fd2ac.html?nclick_check=1
The Times:
http://business.timesonline.co.uk/tol/business/industry_sectors/article2682212.ece
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