As part of INFRONT, Sarona Asset Management (Sarona) managed a blended finance investment vehicle; Sarona Frontier Market Fund Two (SFMF 2) by catalyzing a $15 million first loss capital from Global Affairs Canada to raise an additional $175 million from public and private sources. Sarona selected local fund managers who could demonstrate that they add strategic and operational value to the companies in which they invest. By working with the right partners and executing on an evidence-based impact investment strategy, Sarona built a diversified portfolio of funds and companies and aimed to deliver risk-adjusted returns via Growth that Matters.
Capacity to deliver development outcomes: Sarona screened all investments for ESG impact per the Global Impact Investing Network’s IRIS metrics. In SFMF 2, 12 out of 44 companies for which there is data available can be classified as “pro-poor investments”.1
Diversification: A broad allocation to primary funds, secondary funds and direct co-investments ensures diversification across several investment dimensions.
Geographical focus: Sarona generally focuses on countries defined by the World Bank as low and middle Income (GNI per capita below $13,000). However, in INFRONT Sarona ensured that a certain number of investments would be made in Global Affairs Canada priority countries.
Lifecycle phase: Sarona believes that SMEs in their expansion stage, represent one of the best risk-adjusted opportunities within these fast-growing markets. Sarona also affirms that private equity provides the best access to these sectors.
Size: Sarona targets relatively small funds with managers that have demonstrated their ability to add strategic and operational value to the companies in which they invest.
Sectors: Sarona seeks opportunities in sectors that are set to benefit from the rapidly rising middle class within frontier and emerging markets. These sectors include information and communication technology, education, healthcare, financial services, transportation and logistics, light manufacturing and consumer goods.
Structure of investments: Most investments are made through shareholder positions or limited partnership interests in collective investment vehicles to diversify and mitigate risk.
1 A pro-poor company is defined as fulfilling at least one of the following criteria: 50 percent or more of total staff are low income earning employees (wages paid is less than USD $3,000/year) [ref: ILO database], 50 percent or more suppliers are micro-enterprises (up to 10 employees) [ref: IFC, 2012], or 50 percent or more target clients are low-income (earning less than $3,000/year) [ref: ILO database].