Being the preferred partner
Catalyzing co-financiers in our projects is an excellent way to leverage our own balance sheet and increase our impact. It results in alignment between public financiers, commercial investors and ourselves to meet SDG targets. FMO catalyzed a total of EUR 1.1 billion during 2017, outperforming the target for the year (EUR 900 million).
In 2017, our efforts to blend public funds and private funds paid off. In June, Climate Investor One (CIO) reached its first close. Six months later, in December, a second close was realized, bringing the total fund size to USD 475 million. With these funds, CIO will provide expertise, technology and financing to renewable energy projects. CIO can finance the full project development cycle, ranging from early stage project development activities, to equity financing during construction and debt finance once the project is operational. This innovative concept was financially supported by the Dutch government and FMO. These contributions allowed Norwegian and British pension funds, among others, as well as a Dutch insurance company to participate in lower-risk tranches of the facility.
The strong performance of emerging equity markets and a continued low interest rate environment in the Eurozone, combined with the wider adoption of the SDGs among institutional investors, proved supportive of market appetite for impact investing in emerging markets. This helped FMO Investment Management (FMO IM) during 2017 in securing significant investor commitments. Notably a USD 100 million initial commitment from a large Swedish pension fund in the NN-FMO Emerging Markets Loan Fund, expected to have a first close in 2018. In 2017 FMO started to underwrite transactions for the fund ensuring a swift deployment of capital after first close. The fund will participate in FMO loans to financial institutions, renewable energy projects and agribusiness companies throughout the value chain. This new institutional fund will be the fourth proposition for FMO IM, combining measurable impact with market rate financial returns.
Below is an overview of performance of the other propositions for which FMO IM performs a portfolio advisory or portfolio management role.
The ACTIAM-FMO SME Finance Fund, with a Net Asset Value by year end of EUR 163 million, participates in FMO loans to financial institutions with an objective to improve access to finance for emerging markets based SME companies. Investors are primarily Dutch medium-sized pension funds and insurance companies. The fund will continue to re-invest its proceeds in new loans as the fund end-term was extended in December by two years to November 2025. Over 2017 the fund showed a net return of 0.8%, due to one impairment in the total portfolio of 49 loans. The return since inception end of 2013 amounts to 10.0%, with an annualized return since inception of 2.4% (please note that all figures for the fund are unaudited).
By end of 2017 the FMO Privium Impact fund increased to USD 76 million with a total of 32 loan participations across FMO’s focus sectors financial institutions, renewable energy and agribusiness. The fund offered a net return of 2.1% to its retail investors. The fund showed a strong performance with no provisioning in the loan portfolio so far. The fund was set up in close co-operation with ABN AMRO MeesPierson who were given exclusive distribution rights so far. This exclusivity will be lifted in 2018 which is expected to lead to a higher inflow and diversification of investor base.
In March 2017 FMO IM signed an Investment Advisory Agreement with the ASN Groenprojectenfonds’ (Green Projects Fund) fund manager ACTIAM Impact Investing to invest up to 10% (currently approximately EUR 40 million) from the ASN Groenprojectenfonds in FMO's renewable energy transactions. FMO Investment Management acts as the investment advisor for the fund and co-ordinates and advises upon participation in new FMO loans to hydro, solar and wind energy projects. In 2017 the fund made two loan commitments totaling USD 7.2 million.
We aim to be the preferred partner for the Dutch government in support of its international development ambitions. We took important steps in 2017 to that end by aligning our strategy with the SDGs.
For many years FMO has managed the Dutch government funds MASSIF, AEF and IDF. With these funds we can invest early on, taking high risks, and by doing so catalyzing new investors, including FMO. During 2017 we outperformed the EUR 100 million target for new commitments of these funds.
Since 1 January 2017, MASSIF has been operated as FMO’s inclusion fund, investing in intermediaries that reach out to (1) Micro, Small and Medium Enterprises (MSMEs) in fragile and low-income countries, (2) MSMEs in rural areas, (3) women-owned MSMEs and (4) people at the base of the pyramid. New commitments in 2017 amounted to EUR 99 million and included a local currency loan for MSMEs in Afghanistan and a loan for women and young entrepreneurs in Jordan.
Through the Infrastructure Development Fund (IDF) and the Access to Energy Fund (AEF), FMO invests in high-risk infrastructure and energy projects with a strong focus on supporting off-grid solutions for people, currently not connected to the energy grid. New commitments in 2017 amounted to EUR 27 million for IDF and EUR 84 million for AEF (this latter amount includes EUR 50 million related to the investment in the Climate Investor One fund). The IDF fund realized several successful exits during the year, among others from the investment in an Indonesian renewable energy developer.
The Capacity Development (CD) program supports knowledge transfer and provision of technical expertise in areas of environmental and social risk management, in green, in gender equality, and in governance and risk management. During 2017 we supported 73 clients through CD. One example is the ship recycling sector initiative in Bangladesh, putting safety and environmental risks in the process of dismantling ships high on the agenda of banks and ship recycling companies. Because of this initiative, in 2017 the first large ship recycling company received a certification under the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships.
During 2017, FMO intensified its investments in the so-called ‘Circle around Europe’, mainly the Middle East and Northern Africa. These investments fit efforts of the Dutch government to support economies in this region. In total, during 2017 we invested more than EUR 770 million (including catalyzed amounts) in countries included in the Circle around Europe. To name one example, we made an investment of EUR 13 million in a fund which on-lends to financial intermediaries that finance small businesses and micro entrepreneurs in fragile areas. We funded the investment from MASSIF, and further supported the fund with a technical assistance grant.
We have taken concrete steps to support internationally oriented Dutch businesses that are looking for financing solutions and enable them to become more competitive in development projects with a social impact in the international markets. We proactively contributed to the preparation of Invest-NL, a new institution aspiring to provide export and investment solutions and other foreign investment instruments for activities of Dutch SMEs and corporates in developing countries and emerging markets. We also established NedLinx B.V., a subsidiary in which we positioned the NL Business activities, and are exploring whether this subsidiary could become the joint venture partner for Invest-NL as a response to international business ambitions.
In parallel, we closed a total of EUR 94 million worth of new commitments that involved Dutch companies. The NL Business department built a broad pipeline of export finance and other investments. Based on the size of the pipeline we feel that our additionality is recognized in the market, giving us confidence going forwards.
In the field of project development, we initiated early stage project development activities out of the Project Development Facility (PDF), a Dutch government funded facility. Through PDF we aim to make early stage projects bankable. We have built up a pipeline of projects in agribusiness & food and in climate projects, mostly in the water sector (sanitation, distribution etc.). To further infuse these efforts we joined forces with the Netherlands Water Partnership (NWP). While FMO designs financial solutions, NWP mobilizes the Dutch water sector.