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| Strategic Investment Funds
companies or projects that are not conventionally targeted by PCFs or are deemed by PCFs to be too risky. Both ISIF and Marguerite, for instance, made investments in the respective target geographies during the global financial crisis and the ensuing European sovereign debt crisis when private investors suffered from heightened risk aversion. Both funds also target investments with high additionality that, by definition, struggle to attract PCF capital. By exiting investments made in such circumstances, SIFs demonstrate to PCFs the potential and viability of attractive financial returns in a certain sector, facilitating the future flow of private capital. In addition, SIFs looking to expand their investor base beyond existing sources of public capital may exit investments to show a proven track record of returns to prospective private investors in the fund. Marguerite, for instance, adopted this approach to enhance its credibility with private investors ahead of a new fund launch, as described in box 6.7. • Contribution to local capital market development. A SIF, particularly one operating in emerging market and developing economies, may consider exiting a portfolio company through an IPO as a way to increase the size, visibility, and liquidity of the local equity market. For instance, InfraCredit, a provider of local currency guarantees to the Nigerian infrastructure sector and a portfolio company of NSIA-NIF, considers an IPO as an exit option in the long term partly to help develop local capital markets (see the InfraCredit thematic review in appendix B). • Reinvestment of capital. As discussed in chapter 5, some SIFs have greater flexibility than closed-end PCFs to reinvest exit proceeds. These SIFs may want to exit portfolio companies in order to redeploy the capital and gains to new opportunities that fit their financial and economic return mandates.
BOX 6.7
Investment exit: The case of Marguerite By the end of 2017, Marguerite’s first fund (Marguerite I, launched in 2010) was fully invested. Marguerite I had received €710 million in capital commitments exclusively from public sources, including the European Investment Bank and several European state- controlled financial institutions. To monetize part of the portfolio, return capital to investors, and enhance the credibility of the fund manager with private investors ahead of a new fund launch, Marguerite decided in 2017 to sell five renewable energy and concession-based assets to a new vehicle, still managed by the Marguerite investment team but fully backed by private capital. It ran a competitive sale process, with a financial adviser and vendor due diligence. Marguerite Source: World Bank; see Marguerite case study in appendix A.
Pantheon was set up as a Luxembourg special partnership (a société en commandite spéciale, or SCSp). Marguerite Pantheon is an investment vehicle wholly owned by a pool of funds and managed accounts run by Pantheon, a global private markets fund investor. The Marguerite investment team is still in charge of managing Marguerite Pantheon. The fact that the five assets were deemed attractive by Pantheon and other bidders highlighted Marguerite’s expertise and track record in selecting and executing financially attractive greenfield infrastructure investments. Marguerite’s investors obtained an attractive price for the portfolio, within their expectations in terms of internal rate of return and cash multiple.
