Through fund investments, Norfund reaches more companies and other business areas than we could on our own. The fund managers contribute to developing local, sustainable companies based on local knowledge, industrial insight and efficiency initiatives.
Why invest through funds
Norfund invests in private equity funds to gain access to areas in need of investments outside our internal expertise. The fund managers possess both local knowledge, industrial insight as well as capabilities in growth and efficiency initiatives. Norfund therefore sees fund managers as a very valuable way to access investment areas that otherwise would be difficult.
Investing in private equity funds contributes to building and developing local businesses as well as contributing to more professional and efficient business practices. Local fund managers are well positioned to provide entrepreneurs with access to risk capital. They create value through active ownership and professional expertise and provide local knowledge to support the company’s development and growth.
What we invest in
Norfund invests in funds that have an investment approach aligned with Norfund’s strategy. Through funds we will also invest in sectors and industries where Norfund does not have direct investment capabilities. Geographically we want our fund investments to be significantly exposed to countries on our “core” and “extended reach” list. It is however not required that all investments for a fund is in our prioritized countries.
Private Equity Funds
Our strategy is to invest in funds in which our participation will have a significant developmental effect. We do this through investing in a broad spectrum of funds. On the larger end, we invest in larger, often pan-regional funds that themselves invest in relatively large companies. Several studies have shown that large companies often are more efficient than smaller ones. Moreover, there are relatively few large companies in many of Norfund’s prioritized countries. Hence, helping these larger companies getting access to capital may lead to more professional and efficient businesses.
Small and Medium Sized Enterprises Funds
Historically Norfund has focused on small and medium sized enterprises (SME’s) in its fund investments. This continues to be an important area. This business segment often faces a particularly challenging funding environment. These businesses are often owned and run by persons with roots in the local communities, and an investment in these companies may have a direct effect for people we want to reach.
Thirdly, Norfund also invests in very challenging business environments. Several countries don’t have developed markets for funding neither through banks nor through equity markets. In such situations Norfund may support the establishment of new private equity funds, such as the Kinyeti Fund in South Sudan. One may also invest in established funds that addresses the special challenges in such markets. These initiatives may be time consuming, but if successful also proves very valuable to the local communities with an undisputed development effect.
Norfund is dedicated to invest towards the managers/partners that can offer the best outcome in terms of commercial viability as well as developmental impact. Experience has shown that the best results are often found in experienced managers who have managed a few funds successfully with a stable and established team of competent professionals. A large part of our funds is therefore allocated to such managers.
An important criterion for our investments is to be additional. This means that our investments go towards funds and companies which otherwise would find it difficult to be funded. Hence, we also support new fund initiatives, either as a new fund that want to raise capital or as an existing fund who wants to invest in a new area. Our experience tells us that such initiatives are challenging. We therefore only fund such initiatives when backed by very talented and well positioned managers.
Relevant partners/fund managers are characterized by the following:
- Has the required capacity to succeed in managing sustainable businesses
- Has comprehensive and relevant technical expertise
- Is local and/or know the local context
- Adhere to national rules and legislation and is willing to adapt to IFC environmental and social performance standards
- Has zero tolerance for corruption