Open up new sources of finance for impact-driven businesses

The Impact Programme will work with partners to develop new models for intermediation between a wider range of investors and enterprises and support the innovation of new structures that facilitate greater capital flows.

Initiatives

Taking impact investment public

Partner: Eighteen East Capital Ltd

The Impact Programme supported Eighteen East Capital to design and test the market appetite for the launch of an Impact Investment Trust on the London Stock Exchange. If successful, this would make impact investing in frontier markets accessible to all categories of investor, including ordinary private individuals, by providing a regulated product offering liquidity and a low minimum investment size. Funds raised would be on-invested in specialist impact funds in Sub-Saharan Africa, South Asia and Latin America. The results from the test marketing for the launch of an Impact Investment Trust on the London Stock Exchange can be read here.

Scope of work

DFID is helping to meet the costs of:

• Selecting an investment advisor
• Defining the investment mandate, impact strategy and impact assessment methodology
• Engaging a broker to support test marketing
• Drafting a simplified prospectus and an investment advisory agreement for test marketing purposes based on a Close-Ended Investment Company (CEIC) model
• Market-testing the proposition with potential investors and their advisors
• Producing a report on the findings of the test marketing exercise, to be made available to the public

Intended impact

The market-testing results have indicated a reasonable chance for a successful launch of an initial public offering (IPO) and Eighteen East Capital has sourced additional funding to complete the structuring of this product. The successful launch of the first vehicle of this type would potentially trigger the launch of competing and complementary vehicles. This would help to develop an impact investing CEIC sector on the LSE and other major stock exchanges, thereby facilitating much larger sums of private capital to invest for impact.

Creating a Liquidity Vehicle

Partner: Enclude Capital Advisory36006 Enclude 4C Logo

The Impact Programme is supporting Enclude to support the building of a secondary market for impact investments through the creation of a Vehicle that will offer exit opportunities to early stage portfolio owners and managers. The goal is at once to stimulate activity from new investors seeking exposure to impact assets and to allow portfolio managers and owners to achieve liquidity, while providing underlying impact businesses a clear pathway to further develop and deliver their full performance potential.

Scope of work

Prioritising DFID target countries, Enclude aims to unlock new sources of private capital for investment in impact oriented enterprises, by improving liquidity opportunities in impact investing. To do this, Enclude aims to design a Liquidity Vehicle, proposed to be a permanent investment company, that would purchase and aggregate existing impact investment assets with defined exit pathways (currently on the balance sheet of impact funds and fund managers). To improve the risk-return profile of the Liquidity Vehicle, Enclude would seek to incorporate a certain level of risk mitigation, by including features such as continued exposure from the portfolio seller as well as a possible limited liquidity guarantee.

The work will involve three distinct phases:

Phase 1 Finalise Vehicle design: Enclude will develop a detailed design for the Vehicle based on inputs from interviews and financial modelling.
• Phase 2 Finalise the Vehicle structure: Enclude will develop preliminary recommendations for the capital and governance structure, legal form and preferred jurisdiction of the Vehicle through consultation with legal and tax advisors.
Phase 3 Conduct pre-marketing: Enclude will develop a comprehensive package of marketing and transaction related materials for the potential Vehicle Backers and Investors.

Intended impact

The Liquidity Vehicle would aim to solve issues associated with investor needs for larger transaction sizes, geographic and sector diversification, regular liquidity, and a more attractive risk/return profile, while ensuring mission preservation of the underlying enterprises by allowing more time and capital to deliver the intended impact objectives.