Transaction intermediaries, which include advisory firms and fund managers, play a crucial role in bringing blended structures to initial financial close and beyond. Yet, they are often an overlooked player in the blended finance market. Oftentimes, sponsors of blended funds, facilities, and projects approach Convergence at a critical point in their blended finance journey. Many organizations come to us with a vision of what their vehicle could look like and a clear impact objective. However, they often bring many open questions around the details of designing and structuring their solution. Here is where intermediaries become vital in bringing a concept to market. Intermediaries can identify, test, and develop structures that successfully bring public, philanthropic, and private investors into one blended transaction while attending to their respective investment interests and requirements. While Convergence doesn’t provide transaction advisory services, we can connect members to intermediaries among our network who can support organizations in this way. Here, we wanted to highlight these organizations that often stay behind the scenes, including what they actually do and how you could work with them.
What do capital advisory firms do?
A case in point is Palladium Impact Capital, the capital advisory arm of Palladium, a member of Convergence. Palladium Impact Capital structures, negotiates, and executes transactions to raise debt and equity capital from a range of investors. In 2020, Palladium Impact Capital structured the Energy Entrepreneurs Growth Fund (EEGF), an investment fund that provides catalytic financing and technical assistance to early and growth-stage companies in Sub-Saharan Africa operating in the access to energy market. EEGF blends capital from Shell Foundation, the United Kingdom’s aid agency FCDO, the U.S. Development Finance Corporation (DFC), and FinDev Canada, amongst others. Palladium Impact Capital also advised on the fund manager selection for EEGF.
Another example is Investing for Good (IFG), an impact investment advisory and impact management firm that structures and implements innovative finance strategies to mobilize capital for social purposes. IFG specializes in the setup and launch of blended vehicles and works with charities, social enterprises, NGOs, and others. One example is Fòs Feminista (formerly International Planned Parenthood Federation), an international alliance that centers its work on women, girls, and gender-diverse people in over 35 regions. In 2020, Fòs Feminista sought help from IFG to establish its first impact investing fund globally, the Feminist Impact Fund. The objective was to support its member countries in Latin America and the Caribbean to inject vital patient capital into a pre-screened pipeline of early-stage reproductive health organizations. The fund offers debt capital of up to $400,000, and technical assistance to help organizations scale their social enterprise models. IFG’s support included assisting with the strategy, developing the operational and financial model, legal structuring, producing investor materials and securing commitments from investors, such as Packard Foundation. IFG also brought in the support of expert legal counsel from White & Case LLP. The result was the launch of a blended $2.5 million fund.
Why work with an advisory firm?
Finding the right advisory firm can be a game-changer for your blended finance ambitions. Oftentimes, the transaction advisor brings a complementary skill set to the client organization. Take, for example, the work of Catholic humanitarian agency Catholic Relief Services (CRS) in El Salvador. CRS had long been supporting local water utilities which struggled to deliver clean water to their customers. When CRS realized that technical assistance alone wouldn't be sufficient and that utilities needed loan financing to make the necessary investments to improve their networks, CRS initiated the set-up of a trust fund, FideAgua. Housed within the public development bank BANDESAL, the trust fund lends to local financial institutions, which in turn provides affordable loans to the water service providers. Recognizing CRS needed support with fund management, it brought on board Total Impact Capital, a U.S.-based impact investment firm and member of Convergence. Total Impact Capital helped raise the required capital, and structured and managed the blended vehicle.
Advisors can also bring in cross-cutting experience closing deals with commercial and impact-first investors, Development Finance Institutions (DFIs), and grant providers. For example, Samunnati, an agriculture finance company in India that provides loans to smallholder farmers and farmer producer organizations (FPO), wanted to expand its reach to areas with large unbanked smallholder farmer populations. Since many prospective borrowers in these areas missed Samunnati’s credit risk underwriting criteria by a small margin, the company could not use commercial shareholder capital to reach these areas. To help secure alternative financing, Samunnati brought in Setuka Partners LLP, a US and India-based firm (and member of Convergence) with experience closing blended finance transactions across Asia and Africa. Setuka was able to secure a $20 million long tenor loan from a DFI with flexible repayment terms that were unavailable commercially. This was supplemented with a Technical Assistance Grant to set-up an FPO Academy to improve financial literacy. The Academy supported the adoption of digital payment systems and connected the farmers with organized markets through cost-effective financing.
Without a good market overview, it can be hard to identify the right advisory firm. More transparency would help. For example, funders and investors should give due credit to intermediary firms in press releases that announce the launch of a new vehicle. Convergence also helps to bring more transparency to the market by pointing our members to firms with relevant experience and a track record in your target sector or geography. Let’s give the intermediaries the recognition they deserve. Without their hard work, the blended finance market wouldn’t be where it is today.
Register for our upcoming member training: Do I need an Advisor? Insights from Advisory Firms in Blended Finance on March 29th, 9am – 10:30am EDT here.
If you are a member, browse our members list to discover the intermediaries that are part of our network - or contact your relationship manager.
If you’re not a member, get in touch with [email protected] to learn more.