6.1 Phases of the SIF’s investment process

FIGURE 6.1

Phases of the SIF’s investment process

Assess and pursue optimal exit route in light of SIF’s financial and economic objectives.

5

Exit 1

Source potential investment opportunities.

Origination

Ownership and supervision

Depending on extent of SIF’s control over an investment, contribute to or drive financial and economic value creation plan. 4

Execution

Negotiate transaction terms; agree on relevant legal documentation and capital structuring; and conduct regulatory approvals.

3 2

Screen potential investments based on SIF’s financial and economic investment criteria; and conduct in-depth due diligence and analysis of promising investments.

Evaluation

Source: World Bank; see case studies in appendix A. Note: This figure depicts phases of the SIF’s investment process related to unlisted equity investments. SIF = strategic investment fund.

incentives translates into suboptimal investment decisions.1 The investment process also informs some of the structural elements of the fund, such as size, composition, and skill sets of teams (Invest Europe 2018). For mixed capital SIFs, a well-disciplined investment process is an important component of the fund’s marketing efforts and materials (Invest Europe 2018). It provides transparency and confidence to investors that the fund manager will follow effective procedures to achieve the return objectives included in the investment strategy. In addition, a SIF with a well-disciplined investment process is likely to be perceived as a more efficient and reliable counterpart by private capital funds (PcFs) that may seek to co-invest with it.

The fund manager or senior members of the investment team typically drive the definition of the investment process, which is then formulated within the investment strategy or in ancillary documents. defining the investment process requires a pragmatic understanding of, and expertise in, unlisted investments and related best practices. This requirement affects the choice of the body responsible for establishing the investment process. In mixed capital SIFs, the primary responsibility falls with the fund manager, in consultation with the public sponsor, as it does for the definition of the investment strategy.