New ‘holdco’ pooled structure aims to boost impact investment

Holding company vehicle to enable investors and donors to pool finance

Social enterprise GlobalVision has been awarded grant funding from the Canadian government’s new blended finance body Convergence to develop a global network of eye care hospitals through a holding company (‘holdco’) structure – a relative rarity in the impact investment space.

Speaking to Responsible Investor, Joan Larrea, CEO of Convergence, said while common in the mainstream business and microfinance worlds, the holdco model hadn’t been seen in the broader social enterprise world.

“It’s not very often employed,” she said. “And often you are funding each social enterprise one by one by one.”

She said GlobalVision aimed to operate at scale and capital raise at the holdco level enabling investors and donors to pool finance into one vehicle to fund individual social enterprise subsidiaries one by one in different countries.

“It de-risks. Is much more efficient. And it allows each individual subsidiary to pay dividends to the holding company and support the next step in the chain, allowing for scaling.”

GlobalVision’s goal is to build a network of 62 eye care hospitals by leveraging $31m in grants to catalyse $280m in equity and debt capital over 10 years.

“It’s leverage nine times on philanthropic capital,” said Larrea, formerly with the Overseas Private Investment Corporation (OPIC). “It’s a great blended finance story.”

She also said GlobalVision aimed to use blended finance in a smart way by using different types of capital at different stages of business development.

“It’s different from the blended finance as concessionary capital mixed with debt or equity,” she explained. “The early stage of business development will be de-risked with soft capital.”

Following this other costs will be funded by equity and when the eye care hospitals are up and running it will be funded by institutional debt.Convergence, funded by the Government of Canada, Ford Foundation and Citi Foundation, will awarded more than C$10m in grants over the next five years to develop blended finance models, where blended finance is defined as using development finance and philanthropic funds to mobilize private capital. It has already awarded seven grants including one to develop blue bonds for conservation activities in Small Island Developing States and employment integration programs for Syrian refugees through development impact bonds.

Elsewhere, the second year results from the world’s first operational development impact bond have been released.

The Educate Girls DIB is backed by the UBS Optimus Foundation that has invested $230,000 in the product aiming to improve the quality of girls’ education in India. The Children’s Investment Fund Foundation (CIFF), the philanthropic organisation set up by hedge fund executive Chris Hohn and his wife Jamie Cooper, will pay the foundation its principal and a return of up to 15% if the DIB achieves measured outcomes around educational attainment.

Year two results show that Educate Girls has achieved 87.7% of the 3-year enrolment target and 50.3% of the 3-year learning target. A statement says the UBS Optimus Foundation remains on track to recoup its initial investment.

Speaking to RI, Avnish Gungadurdoss, Managing Partner and Co-Founder at Instiglio, the consultancy that designed the DIB and is providing performance management to support Educate Girls, said the result-based financing model allowed for a flexible and iterative approach to the programme.