Cast study by Obviam
Obviam is an independent investment advisor that offers a broad range of investors access to impact investing in emerging and frontier markets. Obviam’s senior partners have invested over US $400 million in more than 70 funds and 300 underlying small and medium sized enterprises (SMEs) on behalf of the Swiss Confederation since 1999. Obviam continues to invest on behalf of the Swiss Government, and is currently the investment manager of the Swiss Investment Fund for Emerging Markets (SIFEM), the Development Finance Institution (DFI) of the Swiss Confederation.At PGGM portfolio managers are encouraged to look for ‘targeted ESG’ investments where feasible. These are investments that not only perform to the required financial standards but which also are intended to have a social impact. These investments are dispersed across asset classes and teams. Targeted ESG investments reached US$6.1 billion in 2011.
Obviam was established with an objective to mobilise private investments for development. SIFEM’s capital remains the largest share of Obviam’s mandate, but its goal is to attract other clients that seek to invest responsibly in emerging markets within an established, sustainable structure. Obviam is a fund-offunds manager: it invests in private equity fund managers operating on the ground in developing countries.
SIFEM, similar to other DFIs, tends to favour investment in SMEs as it believes this is where it can best support developing countries in terms of job creation, private sector development and improving economic revenues. Many SMEs in emerging and frontier markets face barriers to access capital and tend to suffer from a lack of capital for growth because of a dearth of local financing available. Consequently, Obviam tends to invest in local private equity fund managers that invest growth capital where their investment can help, for example, manufacturing to expand production lines or build new warehouses for expansion.
All of Obviam’s investments for SIFEM follow four critical development investment tenets:
- Subsidiarity: providing long-term financing in markets where it is scarce.
- Leverage: mobilising third-party capital by providing a ‘signalling’ effect to the market through investments.
- Additionality: taking an active approach to investing, Obviam aims to assist private equity funds it invests in (especially new investment teams and first-time funds) to develop and improve according to international best practice.
- Sustainability: ensuring investments made are both financially viable and follow ESG best practices.
Through their investments, Obviam expects to generate impact outcomes including job creation, access to capital, mobilisation of third-party capital, enhanced labour conditions and standards, and improved environmental accountability and corporate governance.
Addressing blockages to SME growth is another way in which Obviam’s investments create value. Aside from capital, many of the SMEs require operational and strategic input to attain growth objectives. Obviam invests in private equity funds that specifically cater to these needs. This is done through assisting SMEs to define and implement strategies across a host of activities from financial reporting to product innovation. These strategies include assisting SMEs to manage ESG issues such as formalising board structures, establishing health and safety practices as well as conforming to social and environmental standards in business operations. Obviam’s ESG objectives are to ensure that SMEs operate according to local laws at a minimum and to put them on a path towards international best practice.
Obviam has recently been building partnerships for sustainable private equity fund initiatives in areas such as clean tech, education, healthcare and forestry. For example, it recently invested in a sustainable forestry fund in Africa, which faces the most significant deforestation rates in the world. Other examples include an allocation into an education fund in India and the first clean tech fund in sub-Saharan Africa.
With an expected annual internal rate of return (IRR) ranging from five to 15%, Obviam’s strategies create value by providing financial returns as well as positive social and environmental impact.