Private Equity
FMO has a clear role to play in providing risk capital in
the form of private equity and mezzanine finance, which is often
most scarce in high-risk environments. By acting as an equity
investor, we get closer to companies and can increase our
Environmental, Social and Governance impact. As mezzanine investors
we can often achieve the same impact while at the same
time being able to find tailor-made financing solution for an
investee company. Private equity and mezzanine also offer
attractive returns, which contributes to our long-term financial
strength. Of our committed portfolio, 22% is in private equity and
24% in mezzanine financing.
We have a clear private equity model based on partnerships
with fund managers. We invest in a wide range of funds and
co-invest directly in projects alongside fund managers. Though we
take a broad view, our emphasis is on our three focus sectors of
financial institutions, energy and housing. In these sectors, we
also make direct investments without a fund manager to partner
with. In 2010, we invested in a fund focusing exclusively on clean
energy and began talks with a number of parties on establishing a
housing fund. Of our direct investments, most deals were in the
financial sector.
For mezzanine investments FMO can also work without a
partner due to its tailor-made structure and self-liquidating
character. The instrument is still widely used as Tier II capital
for financial institutions. The effect of the new Basel III
requirements remains to be seen, but it is likely that the
instrument will be simplified and closer to equity. At the same
time it may lose part of its effectiveness for the financial sector
in the future while demand for capital products for financial
institutions will increase.