CDC tightens focus on poorest nations, commits $185m to India

Richard Laing, chief executive of the UK government’s fund of funds investor in emerging markets, says the mission to reduce poverty is central to CDC’s investment thesis. Latest commitments to Indian managers underline the strategy.

CDC, the UK government-backed private equity emerging markets fund of funds investor, has re-stated its goal of helping the world’s poorest nations out of poverty, according to its chief executive Richard Laing.

He told PEO: “It is not a seismic shift. It is a re-focusing. We do not provide aid and we do not want to subsidise these markets. But we can take on risk [that other investors do not] and we will decrease poverty by generating wealth. We have been pioneers and we want to stay pioneers.”

CDC has come under fire in recent weeks for what critics considered its increasingly commercial focus. In a recent radio programme broadcast by the BBC, the group’s use of UK tax payers’ money to back a Nigerian shopping centre was held up as an example of a project only likely to benefit the country’s affluent.

Laing told PEO the shift in strategy was not a knee-jerk response to its critics, but the result of a long dialogue with its shareholder the UK government. CDC already invests 60 percent of its capital in African private equity funds – it is the largest limited partner in the region – and 24 percent in Asia. In the future it will focus on sub-Saharan Africa and South Asia, including India, Pakistan and Bangladesh.

CDC invests just under $1 billion (€628 million) each year and the shift in focus will mean it invests less outside of its new core geographies, Laing said. The firm is also considering opening an office in Asia to be closer to the general partners it backs.

Laing said: “We are a small team and an office in Asia would split that up. But Asia is a more mature market than Africa and there are many opportunities to invest.” He said it would be a tougher fundraising climate for emerging market managers as limited partners struggled with the “denominator effect”, where falling values in their mature market portfolios constrain their ability to commit to emerging markets.

“When times get tough we need to stick around. Domestic growth will protect emerging markets from a global slowdown, but the shadow of inflation is across them all. Too early to say what the impact will be, but we constantly reviewing it at our investment committee meetings.”

CDC has just committed $185 million to six private equity funds focused on investment in India. It is expected that these funds will raise a total of over $2.47 billion for investment in the region.

CDC has committed $50 million to Baring India Private Equity Fund III; $50 million to New Silk Route Private Equity Asia Fund; $25 million to India Value Fund III; $20 million to BTS India Private Equity Fund; $20 million to Avigo SME Fund II; and $20 million to VentureEast Proactive Fund.

The latter is CDC’s first early stage investment in India.

Private equity firms invested $17 billion in India in 2007, more than double the amount invested in 2006 of $7.4 billion according to a recent survey. However, the majority of these deals remain later stage where more mature companies are attracting expansion or pre- IPO financing with a relatively small amount being invested in early stage deals.