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SRCF Q1 2019 Report

SRCF Q1 2019 Report

Dear MEDA friends and colleagues,

It was 1953 when MEDA was first conceived as an investment company. In the intervening 66 years, that vision of investing in private businesses to help them grow and create jobs has continued unabated. The manifestation of that vision has been adjusted a few times – from small businesses to micro business to mid-sized businesses and now spanning the whole spectrum from micro to mid-market companies. In today’s portfolio (on page 6), you’ll see all of those: micro, small and medium.

The legal framework under which those investments were made has also morphed over time – from for-profit company to non-profit organization and then to a for-profit subsidiary that was eventually spun out as Sarona Asset Management. Today, Sarona is an independent firm representing private investors and is regulated by various securities commissions. But MEDA and Sarona are tighter partners than ever before, working together to serve investors and investees, striving for market-rate financial returns and positive impact to create strong communities and healthy economies.

In the last six years, MEDA and Sarona have partnered to submit winning proposals to Canadian, American and Australian governments. The MEDA–Sarona partnership of NGO and business, of impact and financial, of advisory and investment, is almost unequalled elsewhere. That quality may have been no more than curious 10 years ago, but today it is compelling. The world sees it and wants it. At this moment, for example, the MEDA–Sarona partnership is in the midst of managing or proposing five contracts with governments. All three sectors – private, public and non-profit – now see the wisdom of collaborating to achieve the Sustainable Development Goals.

We are pleased to bring you the quarterly report of MEDA’s Risk Capital Fund. In these pages, you’ll see that, as of 31 December 2018, MEDA’s portfolio comprised 28 investments valued at $23mm. MEDA uses its own capital to take risks that private investors often shy away from. These investments are meant to build new funds and new companies in the hopes that they will strengthen and become beacons for followers. MEDA’s mission is met when it can profitably seed new business models where jobs are created, women are empowered, the environment is protected, and families are fed.

We invite you to review this report and to call us if you have any questions. And we’d love to have you join us for Sarona’s Annual Investor Days: the afternoon of May 13th in Washington and breakfast on June 25th in Amsterdam. Please do let us know if you can make it.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q1 2018 Report

SRCF Q1 2018 Report

As we round the corner on the first quarter of 2018, we are reminded of how important trust is in all of our relationships.

Emerging markets are eager to develop and to grow faster. But they are faced with an annual multi-trillion-dollar investment deficit. The UN estimates that the investment deficit between today and 2030 is approx. $30trn-$40trn. Sarona is yet small, but we are the infrastructure – the bridge – across which private capital flows to emerging markets. Without intermediaries like Sarona, most capital can’t find its way into developing countries.

But we are not an agnostic bridge. The bridge that we build, cares. We care about why we invest, and how we invest: we invest to build a better world. And to achieve that, we must care about finances, people and the earth. These weeks, we are reminded that such care is also critical to our own success.

Why? Because these weeks, we are witnessing the painful (near?) demise of one of the world’s largest emerging markets private equity firms. Our friends are a large firm, a global firm, and, until-now, a seemingly well-respected firm. Well-respected that is, until all of that changed. At the beginning of February, the New York Times ran an article about several large investors accusing the firm of misappropriation of funds. I’m doubtful that there was any actual misappropriation, but when one’s investments are half a world away, trust counts for more than details.

We are acutely conscious of the fact that we are the stewards of our investors’ capital. Without trust in us, they have nothing. And, because of that, two of our key internal values are Honesty and Integrity. If we are not fully transparent and forthcoming with our investors, our ultimate demise would be no one’s fault but our own.

But those values are also our key to growth and stability. We, and MEDA, strive to be a safe set of hands in emerging markets. Sarona’s future lies in our ability to find and select local investment partners who exude integrity. Investors trust us, not because we are perfect, but because we shepherd their capital into good investment opportunities,while striving for integrity right through the chain of management down to the portfolio company. If we encounter problems in our investments, our work is to solve them before they become our investors’ problems.

Trust, it turns out, is not just cute; it’s absolutely necessary. And trust is built through integrity.

We encourage you to peruse this report, with financial data to December 2017, and to contact us if you have any questions. We also wish to invite you to Sarona’s annual Investor Day in Washington on May 14th. If you interested, please let us know and we’ll send you an invitation.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q4 2017 Report

SRCF Q4 2017 Report

Dear MEDA Colleagues,

As we pause to publish this quarterly report, the weather is clear, crisp and cold – perfect for fireside reflection during the Christmas holiday. Some of our colleagues have just finished Hannukah and before that, American Thanksgiving. And not long before that, Ramadan. All of these holidays urge us to pause and reflect on whether what we do aligns
with what we believe.

Earlier this month, in a presentation to some 40 UN Ambassadors, I spoke about how Sarona invests private capital to meet public goals. The Ambassadors’ interest was in attracting private investors to contribute to the world’s 17 Sustainable Development Goals. Sarona does that, I said. Yet when I speak to private investors, I say that Sarona is the vehicle that allows them to access some amazing growth opportunities in developing countries. Am I being two-faced or is there some unique convergence of values and economics happening here?

For MEDA, the answer is obvious, but for much of the world, that isn’t so. MEDA’s raison d’etre, it’s very purpose, is to create business solutions to poverty – to use strong business practices to achieve the global goals. But much of the world still thinks of poverty and economy as distinct, wherein the former can only be addressed by philanthropy. MEDA’s 64-year experience has disproven that. And that experience has been confirmed by the UN’s own 15-year experience (2000 – 2015) with the Millennium Development Goals, where many of the poverty goals were achieved primarily because of economic growth in developing countries.

In this quarterly report, you’ll see that MEDA’s $23 million portfolio comprises approx. 40% direct equity, 20% direct debt, and 40% funds. One might also think of the portfolio in another way:

  • MEDA invests directly into companies that have a strong potential of financial success and positive impact. It uses both debt and equity to finance such companies. In today’s portfolio, the worst performer among these is Fonkoze in Haiti. Others, such as Codipsa, Imon and MiCrédito have seen flashes of brilliance mixed with very difficult years. The runaway financial winner among these companies is Zoona – a mobile-enabled payments business in Sub-Saharan Africa.

  • MEDA invests in young financial firms that build the infrastructure for the flow of capital to impactful investments in developing countries. These firms – MicroVest, Sarona, ImpactAssets – are all growing and producing great results, although none are out of the woods quite yet.

  • MEDA invests in debt and equity funds that invest in companies in developing countries. The worst performer among such funds has been MicroVest’s Access Africa Fund, which has lost most of its value due to bad investments. The other funds are expected to perform reasonably well by generating modest returns. The newest fund in the portfolio is the Sarona Trade Finance Fund. Using CAD 15 million from Global Affairs Canada and CAD 2 million of its own resources, MEDA has seeded a fund that provides short-term loans to SMEs through local trade finance funds. In 2018, Sarona will determine whether and how to establish a commercial fund on this base.

We encourage you to peruse this quarterly report, remembering that, without their core values, MEDA and Sarona would not exist. And without a successful economic model, we would not invest. Yes, there is a unique convergence of values and economics at play here.

And with that we wish you a few restful days at the end of the year, and an auspicious 2018. May the new year bring you much opportunity to align what you do with what you believe.

Sincerely,

Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q3 2017 Report

SRCF Q3 2017 Report

Dear MEDA Colleagues,

In a recent presentation to the Sarona team, Dr. Maha Aziz of NYU pointed out the stark difference in outlook for low- and middle-class populations in developed countries compared to those in developing countries. The former, termed by some economists as the ‘precariat’ (with reference to ‘precarious’), have seen an increase in wealth disparity and a decrease in income security. Their resulting anger is seen in the streets and in the votes of protest in favour of Brexit and Trump. The outlook for the latter is quite the opposite: they are enjoying growing incomes and their countries are posting decreases in the rich-poor gap. Polling results in high-income countries show an all-time low faith in democracy, while similar polls in developing countries are posting all-time highs.

In investment terms, risk in North America and Europe is high: political instability, geopolitical threats, and economic upheaval due to technology changes. And while Frontier and Emerging Markets have not necessarily seen a decrease in risk, their history of dealing with such risks has earned them a resilience that allows them to weather such events relatively efficiently.

Such broad socio-economic developments are worrying, at least for those of us in developed economies. But it affirms MEDA’s 64-year programme of creating business solutions to poverty. The positive emerging market developments can obviously not be attributed to MEDA alone, but development is occurring, quickly and positively.

The growing economic strength and stability of developing countries also augurs well for MEDA’s and Sarona’s strategies of investing to support the growth of private companies in emerging markets. And while we help those companies grow, we also seek to influence the way such companies and countries support people and the environment. It’s about investing with care and intent. And it’s about helping to build thoughtful and respectful partnerships between the public and private sectors to create a healthier society for all. From an investment perspective, MEDA’s fiscal year has been a good one. After building up market value in numerous investee companies over the years, three were partially or fully sold during the year, therewith allowing that value growth to be recognised in MEDA’s financial statements.

  • Zoona, Zambia: MEDA sold 50% of its shares
  • AIC, Haiti: MEDA exited this investment fully
  • MiCrédito, Nicaragua: MEDA sold 33% of its shares

Set against that, three other companies recently had their values impaired because of poor performance: Mountain Lion Ag (Sierra Leon); Tree Global (Ghana); IMON (Tajikistan). Ultimately however, we believe that MEDA’s portfolio of investments still has a fair market value that is $3.8 million higher than the value recorded in MEDA’s books.

In many ways, Sarona has continued and expanded the investment work that MEDA started in 1953. Sarona moved out of MEDA’s home in 2010 and became independent in 2011. Our first fund-of-funds – Sarona Frontier Markets Fund 1, launched in 2010 – was a difficult and poorly-performing mix of different strategies: debt and equity; publicly traded and private; growth equity, venture capital and infrastructure; passive and active managers. With that experience, we tightened our strategy to only one focus for SFMF2: actively-managed growth equity. We then strengthened our investment team and are now posting very satisfying performance in that second fund. SFMF3, for which we are now raising capital, will replicate that same strategy.

We thank you for being invited into this great MEDA-Sarona partnership. It is an honour. We invite you now to review this report carefully. And please do call us if you’d like to talk.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q2 2017 Report

SRCF Q2 2017 Report

Dear MEDA Colleagues,

It’s been a wonderful quarter for MEDA’s Sarona Risk Capital Fund. The nine months ending 31 March 2017 generated total revenues of $2 million, almost four times that of the previous year. And the net operating income, at $1.3mm before donations, was 28x that of the previous year. This great bottom line is the result of partial exits from two portfolio companies: Zoona and AIC.

In truth, these profits were generated over many years but were simply not recognised until now. MEDA’s last two annual reports, delivered at its annual conventions, have shown losses for SRCF. Meanwhile, Sarona had calculated that, if MEDA had recorded the fair market value of its investments (that is, if its investments had been marked to market) those years would have shown handsome profits. And this year would have shown only modest profits.

Those are the vagaries of accounting: some non-profits and small businesses are exempt from following the rules of IFRS accounting. As such, MEDA’s financial statements do not reflect the true values, gains and losses of SRCF. At the end of March, for example, you will see on page seven of this report that there remains a gap of $3.2 million between what MEDA has recorded in its financial statements and what Sarona estimates as the market value of those investments. That value will ultimately only be unlocked (and recorded in MEDA’s financial statements) when those investments are sold.

The great news this year stems from the sale of:

  • Zoona. In Q1, MEDA sold ½ of its shares in Zoona, a Zambia-based African mobile transactions business
  • AIC. MEDA exited its investment in Alternative Insurance Company (Haiti) at a small profit. The proceeds will be paid in three instalments (Q1, Q2 and Q3 2017)
  • MiCrédito. MEDA has sold, effective Q2 2017, about 1/3rd of its shares in MiCrédito. The gains on this will be reflected in the next quarterly report

We are also pleased that, after two years of significant currency depreciation in Frontier and Emerging Markets, the USD has begun to soften. In the first half of 2017, many of the SRCF currencies of exposure have either held flat or even strengthened slightly against the USD. And economists continue to agree that global growth over the next 50 years will be strongest in Frontier and Emerging Markets.

This week marks the end of MEDA’s fiscal year. Because this report is published 90 days after the end of each quarter, the year-end figures for SRCF will appear in the next SRCF quarterly report. This is also the week when Sarona’s Annual Values Report is published – a document that peers more deeply into the social and environmental impact of Sarona’s investment portfolios. In that context, the world’s Sustainable Development Goals are becoming ever more important to us. We were recently in Stockholm to help craft and sign the Stockholm Declaration – a statement of investor commitment to measure and report on our contributions to the SDGs. We invite you to spend some time with Sarona’s 2017 Values Report to find out how MEDA’s capital is not only generating positive financial returns, but also positive impact.

We invite you to review this report carefully. And please do call us if you’d like to talk.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q1 2017 Report

SRCF Q1 2017 Report

Dear MEDA Colleagues,

MEDA’s modus operandum has always been to innovate, build, and then move on. Sometimes that is hard to do: why let go of a company just when it is hitting its stride? Why do all the heavy lifting, just to give someone else the glory of taking a company to scale? But that is the role MEDA has chosen: to be an innovator, a designer of new business solutions to poverty. No one should accuse MEDA of taking the easy road.

In the last few months, MEDA has structured exits from two of the companies it has helped build. As noted last quarter, MEDA has agreed on an exit from Zoona, a financial technology company in southern Africa. One-half of the sale closed in January and the other half will close after further milestones are achieved. The company has done extremely well, and the new shareholders will reap many benefits of the early risk-laden period of growth.

In early 2017 MEDA also exited AIC, a Haitian insurance company. MEDA helped refloat the company after the devastating 2010 earthquake ruined many lives and bankrupted many companies. At that time, AIC paid out claims and would have gone under if it hadn’t been for MEDA and several other investors that saw both the population’s need for micro-insurance and the company’s potential for a successful future.

Two of the portfolio companies that MEDA has stuck with the longest are Codipsa (Paraguay) and MiCredito (Nicaragua). Also significant in terms of size and holding period of investment are MicroVest (Washington) and IMON (Tajikistan). In each of these cases, MEDA has begun working on transition plans – partial or full handovers to other
shareholders.

As these exits happen, MEDA frees up capital to invest in new opportunities and new challenges. Both are plentiful. Opportunities arise as innovations and new technologies disrupt healthcare, financial services, education, and many other industries in developing countries. Those innovations bring broader access, higher speed, and improved quality of services to more people. But few of these come without great challenges: Political stability is fragile as the fearful populations of many countries turn to ethnic exclusion. And many countries have found economic stability equally difficult to achieve as commodity prices remain low. But that is where MEDA shines most – stepping into challenging settings with a vote of confidence in business solutions to poverty.

We invite you to review this report carefully. And please do call us if you’d like to talk. We’d be glad to share our view and our experience in a tumultuous world. Because someone from the Sarona and MEDA teams is travelling through some distant land most every day of the year, we see that almost every family in the world, whether a Peruvian villager, a Kenyan banker or a Dutch investment professional, has the same dream: to send their children to school, and to raise their family in peace and prosperity. The companies in MEDA’s portfolio do that. They provide that dream and hope to the entrepreneur and the employee alike. Our goal is to support those dreams through careful capital investment.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q4 2016 Report

SRCF Q4 2016 Report

Dear MEDA Colleagues,

At the close of 2016 we reflect on a tumultuous year around the globe. With the market’s perception of elevated global risk today, capital is flowing towards home. For the most part, that means United States.

It is at times like these that the world needs more MEDA.

We believe that south-south trade will grow strongly, in spite of, and perhaps because of the retrenchment tendencies expressed by USA and Europe. But with current capital flows moving out of emerging markets, MEDA’s economic development and SME investment programmes are spot-on – both from a developmental and a financial return perspective.

We have said many times in our comments that it has been somewhat frustrating to see MEDA’s portfolio value grow, but not have that growth recognised in the financial statements. Because prevailing accounting principles do not allow MEDA to mark its investments to market, the financial statements have not been able to recognise most of the growth experienced by the investment portfolio. As of 30 September, for example, over $4.5 million of value remains unrecognised in the financial reports.

We are very excited to share therefore, that MEDA has negotiated a sale of 50% of its investment in Zoona Transactions International in Sub-Saharan Africa, and that this exit will allow MEDA to recognise a gain of approximately $1 million. This sale was only recently negotiated and is expected to close in early 2017.

On page 27 of this report you will see that Zoona is a prime example of the new wave of ‘fintech’ (financial technology) sweeping across the globe. This technology is often described as another leapfrog technology. Just as mobile telephony enabled Africa to leap across centuries of older communications systems, fintech has allowed developing countries to leap across the antiquated banking systems used in Europe and North America. Fintech makes banking quicker, cheaper and more broadly available. Zoona’s technology-based mobile payments platform does just that. Whereas banks are stuck in major urban centres, Zoona can set up almost anywhere. Whereas traditional banking systems can’t easily handle many small transactions, Zoona can serve almost anyone at any size. And just as Google has won the race in internet searches, Zoona is winning the race for mobile payments in Zambia, Malawi, and soon other countries as well.

MEDA was an early investor in Zoona, providing a convertible loan of $480,000. But that loan came with the ongoing counsel of Donovan Nickel, who had a career’s worth of experience as senior executive with HP (Hewlett Packard). As is almost always true in growing companies, capital alone doesn’t provide a complete answer. But capital combined with a safe and experienced set of hands can create magic. In Zoona, it has.

And that is why the world needs more MEDA.

We trust that this report provides a thorough understanding of MEDA’s investment portfolio, but we encourage you to call us to discuss any questions you might have.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Q3 2016 Report

SRCF Q3 2016 Report

Dear MEDA Colleagues,

We are very pleased to bring you this quarterly report on MEDA’s development investment portfolio. This report, which includes financial data to 30 June 2016, also coincides with MEDA’s year-end, and is therefore an appropriate time for reflection.

The portfolio has experienced a fair amount of volatility in the last year and, as can be seen from the portfolio highlights listed on page six, there are quite a number of transactions that have recently been, or soon will be closed. Many of those transactions have been relatively small, and originated from within MEDA’s programs. The investments are part of larger MEDA programs in various countries, where it is deemed that the investment can help achieve the program’s goals.

While MEDA’s SRCF portfolio generated dividends and realised gains of $320,000 during the year, it also booked unrealised losses of $540,000. Those unrealised losses were influenced most heavily by an $800,000 reduction in the value of IMON (Tajikistan). Not only did IMON suffer along with the rest of the Tajik economy, but the drop in the currency negatively affected the investment value. Other significant movements include gains of $260,000 and $170,000 in the value of MiCredito and MicroVest, respectively, and a $190,000 drop in the value of Sarona Frontier Markets Fund 1.

It is noteworthy that, because MEDA uses not-for-profit accounting principles, the financial statements may not reflect the true value of the investments. Overall, we believe that the portfolio is achieving MEDA’s financial targets. As of 30 June, Sarona’s estimation of the portfolio’s fair market value exceeded MEDA’s accounting value by over $5 million.

Whether one applies non-profit accounting rules or fair market value rules to the portfolio, one thing is clear: These investments positively affect the social and environmental outcomes in communities around the world. We see the positive effects of these values at three distinct levels. Firstly, we are pleased with how the investee companies are creating jobs, improving job quality, empowering women, improving governance, environmental strategies, and building sustainable communities. Secondly, we believe that our work with our investment partners in emerging markets changes the way business leaders make decisions and run companies. And finally, we are very pleased to be a leader in the global discourse on achieving the world’s development goals through private sector investment. To that end, we have been representing the private sector in various meetings and conferences with the UN, OECD, and numerous national governments. On the next page, you will see a reprint of one speech we recently delivered at the UN. We believe that by reaching across the aisle – by partnering with the public sector – we can achieve both financial goals and the world’s development goals.

We trust that this report will provide a comprehensive understanding of MEDA’s investment portfolio, but we encourage you to call us to discuss any questions you might have.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management

SRCF Report Q2 2016

SRCF Report Q2 2016
We are very pleased to bring you this report, our quarterly look into MEDA’s investment portfolio around the world.

Reading the portfolio highlights on page six, you’ll notice that MEDA, with the support of Sarona Asset Management, has been disbursing new loans and investing in new equity transactions with the goal of achieving both financial and developmental targets. Most of that recent activity has taken place in Sub-Saharan Africa, while one transaction occurred in Romania.

You’ll see that two of the direct equity investments have experienced reductions in their fair market values in the quarter. Zoona, a mobile payments company based in Zambia, has suffered from the fall in global commodities prices, which has significantly hurt the economy of its home country. Donovan Nickel has spent considerable effort over the past few years helping the company bridge some of its operational challenges. And while its stellar growth has been dented, the company continues to expand and provide a valuable service. We are hopeful that its financial value will also continue to climb in the long run. The other equity investment that took a value hit this quarter was IMON, an MFI in Tajikistan that MEDA has helped build from a fledgling state into a major national bank. The company is struggling to contain a rise in loan defaults, and we are hopeful that it will be able to do so.

The most significant change in the portfolio’s fair market value stems from the investment in the Sarona Frontier Markets Fund 1 LP, the value of which was reduced by over $500,000. This drop was not caused by any operational or investment challenges, but rather due to a change in valuation methodology. It had previously been valued according to the fund’s published LP unit price but, because of a restructuring of the fund, that value is no longer published. As such, this quarterly report will now follow the normal accounting value.

Overall, we believe that the portfolio is achieving MEDA’s financial targets. As of the end of the quarter, its fair market value exceeds MEDA’s carrying value by almost $5 million. It is doing so while investing in companies that have a positive developmental impact. By combining these two values – financial and developmental – MEDA serves as a great example of innovative development finance for today’s world.

We’d like to also alert you to Sarona’s recently-published annual values report, focusing on Growth that Matters. It’s our annual deep dive into the social and environmental impact of the various portfolios under our management. If you haven’t seen a copy, please ask and we’d be glad to send it to you.

We trust that this report will provide a comprehensive understanding of MEDA’s investment portfolio, but we encourage you to call us to discuss any questions you might have.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management