Verdant Capital Hybrid Fund, LP

Financial Inclusion in Africa

66%

of adults in Sub-Saharan Africa are unbanked in a population of over 1 billion and growing. [1]

350 Million

Africans live cash to cash without the security of a financial account, credit cards, or lending facilities. [2]

Over 120 Years

of aggregate experience and significant sector specific know-how power The Verdant Capital team.

Hybrid Fund Overview

Verdant Capital Hybrid Fund LP (“Fund”) will be providing hybrid capital to Inclusive Financial Institutions (“IFIs”) in principally low and lower middle-income countries in Sub- Saharan Africa (”SSA”). This capital is essential for these institutions to expand their financing operations and maintain compliance with relevant banking regulations. The Fund aims to develop a diversified portfolio of investments in IFIs, which are financial institutions with a broader developmental impact than traditional banks, such as reaching unbanked individuals and smaller companies. The focus activities for IFIs include: traditional microfinance; lending to Micro, Small and Medium- Sized Enterprises (“MSMEs”); housing finance; leasing; or specific segments such as education finance, health finance or agri-value chain financing. Fintech-oriented institutions can often be considered IFIs, especially if their core technology is used to reduce transaction costs and enable services such as borrowing, savings or payments to be offered at a “micro-size”.

Key Offering Terms [3]

  • Asset Type  – Hybrid capital instruments such as Subordinated Debt and Preferred Equity, Functions like Private Credit
  • Geographic Focus – Sub-Saharan Africa
  • Industry Focus – Inclusive Financial Institutions
  • Fund Manager – Verdant Capital Limited
  • Structure – German Domiciled, Limited Partnership
  • Offering Size – $100 million, anchored by two DFls [4]
  • Suitability – Accredited Investors only
  • Minimum Investment – $250,000
  • Investment Term – 5-year investment period, then 7-year harvest period [5]
  • Management Fee – 2-2.25% of commitments [6]
  • Preferred Return – 8% annually [7]
  • Carried Interest – 20% above Preferred Return, 2.0% catch-up [8]
  • Organizational Expense – Up to $500k or 0.75% of commitments
  • Subscription Format – First close in 2021, final close in 2024, Capital calls [9]

Compelling Market Opportunity

Sub-Saharan Africa has a population of over 1 billion – 66% of adults in SSA are unbanked. [1] Low population density, low GDP per capita, and political fragmentation has prevented traditional banking institutions from reaching this market. IFIs are seeking to fill this gap, but there are very limited sources of capital for IFIs in Africa, and virtually no sources of hybrid capital.

Seasoned Management Team

Verdant Capital was established in 2013 as a leading impact-oriented pan-African investment advisory firm. The team has 120 years aggregate experience, significant sector specific know-how and offices in Johannesburg, Accra, Kinshasa, Lagos, and Mauritius. The firm has transactional experience in 20+ African countries and is the largest arranger of private debt capital markets for IFIs in Africa.

Intentional Impact Focus

Focused on segments with a high development impact, i.e. providing capital to MSMEs, creating employment, rural and agricultural development, access to more affordable healthcare, education, and housing finance. All Fund investments will be aligned to the UN SDGs of reducing poverty (#1), inequality (#10) and providing foundations for economic opportunities (#8). [10]

Crowding-in to Multiply Impact

Hybrid capital can be leveraged by IFIs to raise more financing from global and local debt investors, thereby achieving a multiplier of developmental impact (“crowding- in”). An investment of $100 into hybrid capital instruments can facilitate a loan of $400 to $500 to an MSME that directly leads to job creation and improved livelihoods by increasing income levels, savings and ability to support essential personal expenses.

Strategy Cornerstones

Country Selection & Diversification
  • Strong economic fundamentals
  • Stable legal and political frameworks
  • Demonstrated capital markets development

Target Companies

  • Institutions with high development impact in financial inclusion
  • Strong track record of returns on equity
  • Size range of $40-320 million of Total Assets

Risk Mitigation

  • Sector specialization and localized team
  • Instruments have contractual maturity or defined exit rights
  • Senior to owners and common equity
  • Hedged currency risk

Impact Assessment

  • Monitoring, measuring, and reporting outcomes
  • Defined targets via Impact Performance Assessment Framework
  • Aligned to UN SDGs
  • Operational Technical Assistance

There are significant risks and investment costs associated with an investment in Verdant Capital Hybrid Fund, LP. This investment is considered speculative, illiquid, and not suitable for all investors. To view a summary of these risks and costs, see the Risk Factors in the Fact Card. This material must be read in conjunction with the prospectus to fully understand the implications and risks involved in this offering. Carefully read the prospectus before investing.

Footnotes

[1] WorldBank.
[2] AfricaNenda.
[3] Please refer to the private placement memorandum for Verdant Capital Hybrid Fund, LP for a full description of the terms of the offering.
[4] The Anchor Investors of the Fund are Development Finance Institutions: European Investment Bank and KfW.
[5] Capital may return to investors starting in Year 5, as capital may not be reinvested by the fund during the harvest period.
[6] Management fee of 2.00% at all Fund sizes of $60mm and above, 2.125% at Fund size of $50mm, 2.25% at initial Fund size of $40mm.
[7] While the Preferred Return is a term of the offering, there is no guarantee that there will be sufficient funds to pay the Preferred Return.
[8] Following the full return of invested capital and the Preferred Return to Investors, the GP will be entitled to 20% of any additional return generated by investments, subject to a catch-up provision.
[9] Capital calls expected for each investment deployment, with the expectation of 10 portfolio investments at the maximum fund size.
[10] United Nations Sustainable Development Goals.

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