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Investing in Illiquid Emerging Market Alternative Assets : Sample Approaches to Microfinance. MF for Institutional Investors Hanson-Wade Conference September 21, 2009. IAMFI’s Mission

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Investing in Illiquid Emerging Market Alternative Assets:

Sample Approaches to Microfinance

MF for Institutional Investors

Hanson-Wade Conference

September 21, 2009


IAMFI’s Mission

IAMFI is a global membership organization dedicated to supporting commercially oriented microfinance investors, particularly Limited Partner institutional investors that invest through MIVs, by:

  • Providing credible, comprehensive and timely information on the microfinance industry from an independent perspective
  • Conducting research on investment-related topics
  • Hosting virtual and in-person educational and networking events
  • Facilitating dialogue and action among all sector participants

IAMFI’s Members

Limited Partners (LPs): Institutions and individuals who invest in an investment vehicle rather than directly in microfinance institutions.

General Partners (GPs): Public and private entities that manage a fund or investment vehicle in which there are many investors.

Service Providers (SPs): Entities that help advise, structure, consult or broker investments in the microfinance industry.

Members:DOEN Foundation, Omidyar Network, Gray Matters Capital, Plainfield Asset Management, Rockefeller Foundation, TIAA-CREF, Triodos Management, BlueOrchard USA, G. Casagrande (SPBD, MicroDreams), Co-operative for Financial Services, J.P. Morgan, MEDA, MicroCredit Enterprises, Minlam Asset Management, Morgan Stanley, Omidyar-Tufts Microfinance Fund, Triple Jump


IAMFI’s Services

  • Information Portal
    • Robust web site with third-party information on microfinance and microfinance investing
    • Reviewed for relevance and accuracy so that investors may evaluate information more efficiently
    • Password-protected “Members Only” section
    • Industry and IAMFI Events Calendar
    • Summaries of IAMFI’s events
  • Research
    • White papers, reference materials
    • Original research

IAMFI’s Services, cont.

  • e-Journal – news, commentary, trends
  • Education, Conferences and Events
    • Hosted and co-hosted international conferences on microfinance investing
    • Issue-specific events and seminars for special interest groups within the Association’s membership
  • Community
    • Forum for members to discuss interests, goals and concerns
    • Vehicle for industry-building activities

Modern Portfolio Theory and Microfinance

  • The Yale Model: Key Concepts
  • Diversification
  • Low correlation
  • Bias toward equity
  • Illiquidity acceptable due to long-term horizon
  • Affinities with Microfinance
  • MIVs offer diversification across countries, currencies
  • Evidence of low correlation with OECD and EM assets
  • Increasing equity focus
  • Long-term investment strategy – with attractive compensation for illiquidity

An Approach to Investing in Microfinance: Rockdale Foundation

  • Sought mission investments with low correlation as part of foundation strategy
  • Allocated a maximum 20% of portfolio
  • Selected debt: most available asset and lower risk profile
  • Maximum term: three years
  • Invested in funds due to GPs’ technical expertise
  • Conducted due diligence, selected three investments
  • Rates varied from 3 to 6% at the time of investment

An Approach to MF Investing: Omidyar-Tufts Microfinance Fund

  • Asset allocation
    • Long-term; tolerance for risk; opportunistic; five asset classes
      • High grade and high yield fixed income
      • Public and private equity
      • Venture capital
  • Funds as principal investment vehicle
    • Pros: tap expert GP managers; leverage limited resources
    • Cons: GP/LP goals not always 100% aligned; fees reduce returns
  • Return expectations – a range
    • 100-200 basis points over benchmark in high grade fixed income
    • 30% + internal rate of return in venture capital

An Approach to MF Investing: Omidyar-Tufts Microfinance Fund

  • Portfolio Characteristics:
  • Allocation at June 30, 2009: 60% equity due to view in late 2005 that it was undervalued relative to MF debt
  • Return: 12% for FY 08 (OTMF will post FY 09 return on web in Nov.)
  • OTMF percentage of portfolio at June 30, 2009: ~10%
  • OTMF correlation: low; due in large part to absence of market pricing;
  • OTMF uses fair value calculations for assets

Investing in Illiquid EM Alternative Assets: Summary

  • Microfinance presents an attractive opportunity for investors with:
    • High tolerance for illiquid assets
    • Global focus
    • Long-term investment horizon
    • Acceptance of the assets’ risk profile
    • Leniency regarding short industry track record

The International Association of Microfinance Investors (IAMFI) is a global membership organization dedicated to serving current and potential market-driven microfinance investors, especially those who invest in funds and other vehicles.

IAMFI helps investors achieve their goals by offering credible,

objective industry information, conducting research, facilitating dialogue, and working to improve the global environment

for microfinance.

IAMFI promotes the virtuous circle of capital flows

between private sector sources, investment vehicles

and microfinance institutions, enabling greater access

to financial services for the world’s working poor.

For more information, contact Joan Trant, Executive Director, +,