European investors ponder second close of innovative Ugandan agriculture impact fund

Development bodies consider investment alongside domestic pension fund

Three European investors have shown interest in a Ugandan impact investment fund promoted by the European Union, which aims at attracting an additional sum of €13m to reach €25m by the end of 2017, sources in the country have told Responsible Investor.

Yield Uganda Investment Fund was launched in January this year with an initial commitment of €12m to invest equity in national SMEs in the agribusiness sector able to give financial returns while creating a positive social impact in the country.

Among those European investors are development institutions, whose identity sources requested RI not to reveal until negotiations are ongoing.

If confirmed, they would join the European Union, anchor investor with a contribution of €10m and Uganda’s National Social Security Fund, a private sector employee saving scheme, with €2m.

The fund is the first of its kind when it comes to financing international development projects, for which the European Commission has normally used grants and not financial products with the goal of generating returns.

The idea of setting up the fund goes back to the time when Roberto Ridolfi was Head of Delegation to the European Union in Uganda, where he served until 2013.

Adolfo Cires Alonso, International Cooperation Officer, Agribusiness and Land of the European Union Delegation to the Republic of Uganda, told RI: “The fund offers a 9% Net IRR [net internal rate of return] for equity investors and 7% for the EU as anchor investor during the next 10 years. In order to attract investors, the EU also offers first loss protection for equity investors.”

Cires Alonso explained that the fund will invest following “strict ESG investment guidelines” in companies with “promising economic results” and the potential to bring about social impact such as job creation, available capital for entrepreneurs or the modernization of environmentally aware agribusinesses companies.The fund manager is the Ugandan firm Pearl Capital Partners. According to its Managing Partner, Edward M. Isingoma, his firm ensures that its funds are rated under the Global Impact Investing Ratings System or GIIRS.

Isingoma told RI: “We have high expectations and are keen to ensure a success in securing a final close. We are also casting our net high as we reach out to not only European investors but also US and Asia-based investors.”

Asked about the perceived risks of the project, Isingoma said: “We have had this from some potential investors, but we believe that for agriculture, Uganda is best destination in the region.”

He added that any challenge would be mitigated “by the hybrid nature of the yield fund structure with an investor loss protection, liquidity preference and flexed terms in addition to a BDS [business development support] facility that shall increase chances of success for the investees and their growth.”

This BDS facility to assist the companies singled out for investment has been funded with additional grants and is managed by the International Fund for Agricultural Development.

The IFAD has hired accountancy firm KPMG to provide the technical assistance that investee companies might need, ranging from governance to marketing and accounting issues. In addition, Deloitte is also part of the project, having been hired to attract investors to the fund.

It is expected that the first two investee companies will be selected by the end of June, of the total average of 20 that the fund will target.