EBRD establishes Equity Participation Fund with global institutional investors

By Olga Rosca
@olgarosca


The establishment of the Equity Participation Fund highlights the EBRD's catalytic role as a key partner for institutional investors and as a leading direct equity investor across the private sector in 36 countries where the Bank invests.

Successful completion of first round of €350 million fund raising

The European Bank for Reconstruction and Development (EBRD) is increasing the availability of long-term financing to the economies it serves, with the successful completion today of a €350-million first round of fundraising for its debut Equity Participation Fund (EPF).

The EBRD has a mandate to foster market-oriented economies and to promote and support private and entrepreneurial initiatives. A central pillar in promoting sustainable economic development is the mobilisation of private sector investment.

China’s State Administration of Foreign Exchange (SAFE) and the State Oil Fund of Azerbaijan (SOFAZ) are the cornerstone investors of the EPF. Further institutional investors will be able to join the fund in the coming months until final closing.

Under the innovative structure of the fund, long-term global institutional investors will be able to participate for the first time in the EBRD’s direct equity investment programme, providing an additional source of much-needed long-term growth capital to the countries where the EBRD invests.

The EBRD has a 25-year successful track record with €11.2 billion of direct minority equity investments in its countries of operations, where it has a strong local presence. The Bank’s investments are made with the highest regard for environmental and social policies and focus on supporting the private sector.

The EBRD will now be able to share its significant equity investment expertise with global institutional investors through a pioneering and cost-efficient fund structure.

Innovative fund structure

The EPF will enable institutional investors to participate in the Bank’s direct equity investments across its countries of operations in central and eastern Europe, Central Asia, and the southern and eastern Mediterranean region, as well as in Turkey, through a highly innovative fund structure.

The fund will allow investors to automatically take 20-30 per cent of the economic interest in all of the EBRD’s eligible direct equity investments above €10 million during a five-year investment period, building a large, diversified and well-balanced portfolio of minority growth equity investments across the countries where the EBRD invests.

The EPF will participate in the EBRD's direct equity investments through equity return swaps, ensuring that the fund fully utilises the EBRD’s governance, expertise and resources while also benefiting from the Bank’s reputation and institutional risk mitigation.

The structure of the EPF includes a liquidity sweep option for investors to sell back to the EBRD the equity return swaps linked to investments that have not been divested within the fund’s expected lifetime.

Equity is a strategic priority for the EBRD

“The EPF will enable leading institutional investors to join us in seeking equity opportunities which boost growth and promote change in our countries of operations,” said EBRD President Sir Suma Chakrabarti. “At the same time, the EPF will provide the EBRD with additional capacity to make equity investments by mobilising institutional investors to invest alongside the Bank through a ground-breaking structure.”

Equity investments are a strategic priority for the EBRD as they enable it to combine investments with engagement in corporate governance reform.

“Due to the underdeveloped nature of capital markets in the EBRD’s countries of operations and to reduced capital flows into the region since the financial crisis there exists significant demand for the Bank to support private sector growth. Through our network of equity investment professionals, working alongside regional and sectoral specialists and our nominee directors, the EBRD will be able to play an important role in the growth of equity markets in the region and will target market returns. The Bank's alignment of interest with global institutional investors through the EPF will strengthen the sustainability of long-term capital flows to the EBRD region,” said Hassan El-Khatib, EBRD Managing Director, Equity.