Hats off to our investees
The COVID-19 pandemic completely disrupted not just our job itself, but how we worked. To keep providing much-needed support in times of crisis, we needed to quickly adapt. But how do you evolve “on the go,” while minimizing COVID-19’s impact on your customers?
FMO’s Private Equity department uses a tried-and-true 3-step process to handle deals prior to COVID-19: opportunity scan, clearance-in-principle, and financial proposal. Investment Officers, such as Nikolay Zubtsov, start by reviewing the opportunity scan, determining whether the potential investment is a prudent portfolio addition. If approved, he conducts on-site due diligence, which involves meeting the management team or the fund manager, visiting offices and production facilities, and collecting feedback from stakeholders.
For Zubtsov, who is in charge of Asian and Eastern European investments, remote working had been already integrated on a certain level. He frequently contacted investees remotely, while still meeting in person at least once a year. With COVID-19, even that became impossible. “We had customers requiring urgent funds,” Zubtsov says, “so critical action was needed. The focus was on saving and supporting portfolio companies.”
FMO also invests together with local Private Equity partners in sectors, other than our core sectors, that contribute strongly to job creation and sustainable economic development. One of our Indonesian fund investments active in the retail and restaurant and dining sector was badly hit by COVID-19, with some of the portfolio companies generating almost no revenue at the time and requiring immediate assistance. Together with the German Development Finance Institution (DEG), FMO set up a funding facility tailored for this specific situation. Through Fortio, a special purpose vehicle created for this transaction FMO invested US$6 million in a COVID Liquidity Injection Plan, supporting our investee when most needed and deepening our business relationship.
Mandarin Overseas Robotics Enterprise (MORE), an Indonesian auto parts manufacturer, is another example of a business that was hit by the pandemic. The company suffered a significant drop in revenue following the decrease in orders from its main customers last spring. Together with our local partner, FMO provided additional funding through a follow-on equity investment, allowing MORE to continue working during the peak of the crisis.
That said, Zubtsov’s challenge was having no physical meetings with investees or other partners. With everything now “2D”, he—and the rest of FMO—had to adapt to a new working style. “It was strange: Wi-Fi quality was suddenly very important,” he says. Since both investments were with existing partners, and timing was of the essence, we relied on virtual checks and visits. “We adapted quickly, but social interaction was still the missing part of the equation. Hats off to our investees and local partners who successfully managed the crisis on the ground!”
Zoom and emails cannot fully replace Zubtsov’s on-site due diligence—particularly for new customers—but as we start to integrate a new form of working, striking the balance between remote and on-site work must be found. “What’s the proportion of remote and on-site work?” Zubtsov asks. “I can’t say yet. These components will be there—just how exactly, remains to be seen.”