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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. Its latest commitments to Indian managers underline the strategy.

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

He told PERE’s sister website, Private Equity Online, the strategy was not a “seismic shift” but a refocusing of its efforts. “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,” he said.

CDC has come under fire in recent weeks for what critics considered is its increasingly commercial focus. In a recent radio program broadcast by the BBC, the group’s use of UK taxpayers’ 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.”

Laing added that 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 review it at our investment committee meetings.”

CDC has just committed $185 million to six private equity funds focused on investment in India, including Baring India Private Equity Fund III; New Silk Route Private Equity Asia Fund; India Value Fund III; and BTS India Private Equity Fund. It is expected that these funds will raise a total of over $2.47 billion for investment in the region.

Earlier this month, CDC committed $149.8 million to six private equity real estate funds in Africa, including $20 million to Capital Alliance Property Investment Company. The fund is the first real estate fund to be managed by Africa Capital Alliance, a recently launched independent private equity firm focused on investment in West Africa. The fund invests in greenfield developments including residential, commercial and retail properties, primarily in Nigeria.