UK’s development finance institution CDC Group Plc. has announced a new investment strategy under which it plans to concentrate its new commitments in South Asia and sub-Saharan Africa.
The new strategy by the CDC Group, which has till now acted as a fund of funds and backed a host of Indian private equity funds, also entails making direct investments and using instrument tools including debt.
CDC plans to invest up to £800 million ($1.3 billion) in South Asia by 2015, which includes countries like India, Pakistan, Bangladesh, Sri Lanka, Afghanistan, Nepal and Bhutan. It also plans to deploy £1.2 billion ($1.95 billion) in sub-Saharan Africa region in the next five years.
India is already the single largest investment destination for the CDC Group, followed by countries like China, South Africa and Nigeria. CDC has invested more than $1 billion since 2004 in Indian funds managed by PE firms like ICICI Ventures, Actis, Avigo Capital Partners, Baring India, IDFC Private Equity, India Value Fund Advisors and Aureos.
The CDC Group, which was founded as the Commonwealth Development Corporation in 1948, has been investing in India for more than two decades. The firm earlier used to make direct investments through CDC Capital Partners but its private equity unit was spun out as Actis in 2004. Since then, CDC has been operating as a fund-of-funds and remains a key sponsor of the funds launched by Actis.
“CDC will now concentrate exclusively on the low and lower-middle income countries in sub-Saharan Africa and South Asia where 70 per cent of the world’s poor live. In lower-middle income countries, CDC will focus on regions and sectors of need where capital is scarce,” a CDC statement said. CDC classifies India in the lower-middle income segment where it will avoid sectors that attract commercial capital.
CDC is also looking to make two new investments in India – one focused on rural businesses while the other targets the country’s eight poorer states. In addition, it is evaluating deals in an African agri-business fund and infrastructure projects, as well as a $30 million commitment to funds that provide long-term loans and guarantees to green energy projects in developing countries.
This is also reflective of some of the recent funds that CDC has backed in India, which includes focused fund managers in areas like microfinance, agri business and renewable energy. These include Caspian Advisors’ India Financial Inclusion Fund, Berkeley Energy’s Renewable Energy Asia Fund and Rabo Equity’s India Agri-Business Fund. CDC has also made new commitments to private equity funds like Renuka Ramnath’s Multiples and Peepul Capital in India in 2010.
Last year, CDC also made its first commitment to an early-stage fund by committing $12.6 million to Seedfund II. The company has said that it is looking to invest in emerging segments like education.
CDC Group aims that by 2015, debt and direct investments will constitute 20 per cent each of its portfolio.
The CDC Group plans to partner with its fund managers and other development finance institutions in order to make direct investments. It eventually plans to start making direct investments on its own. CDC’s debt investments will target frontier markets and small-sized enterprises, which will be made through debt funds, partnerships and direct investments.
CDC also plans to mobilise external capital for investments. According to the company, CDC will also examine the possibility of managing third party capital such as pension funds, to boost the funds deployed.