Private equity firm birthed within MEDA has ambitious growth plans
When MEDA spun off Sarona Asset Management (SAM) as a private equity firm in 2010, it was a “lonely voice” in the investment industry, company founder Gerhard Pries says. Thirteen years later, the company’s values have become more widely accepted.
“Since Sarona spun out (of MEDA), one of the big developments has been the acceptance of investment in people and their businesses, investment in developing country economies as a legitimate, and in some cases, the preferred form of economic development, indeed of poverty alleviation,” Pries said. Pries stepped away from active management at Sarona in July of 2022. He now chairs the company’s board and helps out with business development. Company co-founder Serge LeVert-Chiasson is now the managing partner.
Three other staff — Ralitsa Rizvanolli, head of investments; Patrick Hergt, head of business development; and Mat LeRoux, head of finance and operations, were promoted to partners as part of the management transition. The company Pries and LeVert-Chiasson started has grown to assets under management of almost $400 million, with staff on three continents. Sarona Asset Management (SAM) was founded in December 2009. It took its name from the Sarona Dairy, MEDA’s first investment in Paraguay in 1954. Eighteen years later, in 1972, shareholders in the dairy, which greatly improved the genetics of the country’s bovine breeding stock, repaid the investment to MEDA and acquired complete ownership of their company.
The Sarona name derives from a plain in Palestine, extending from the Mediterranean to the hill country in the west of Jerusalem. This area was celebrated in the Bible’s Old Testament books of 1 Chronicles and Isaiah for its beauty and fertility. In 1999, wanting to rekindle MEDA’s since-abandoned investment program, Pries founded MEDA Investments Inc. and Sarona Global Investment Fund as subsidiaries of MEDA. Eleven years later, MEDA’s board agreed that to allow its investing-in-development mission to flourish, it needed to free Sarona into the private investment world. Sarona’s managers purchased 90% of MEDA’s ownership.
That year, SAM completed the first $12 million round of investor commitments to its Sarona Frontier Markets Fund 1 LP. The MEDA board and Sarona partners considered several factors in their decision to establish Sarona as a separate entity. They realized that the growth of their mission would be hamstrung by a non-profit parent. “No private investor wants their investment capital managed by an NGO,” Pries said. “It’s just not going to happen.”
Secondly, they wanted some separation from the MEDA name, fearing investors’ perceptions that investing with Sarona would result in their money being managed by a church, he said. Sarona also couldn’t be constrained by a non-profit salary system. “To do the best job of achieving MEDA’s mission of creating business solutions to poverty, we had to free Sarona to pursue that mission as successfully as possible. We had to hire the best people we could find, reward them based on success, and require them to invest in the funds they are managing for other people. When we were part of MEDA, we were not allowed to do that.”
Finally, the MEDA board members were not eager to face the paperwork of reporting all of their business dealings to the US Securities and Exchange Commission each quarter. However, the relationship with MEDA remained crucial to Sarona’s early growth. “Many of the first investors in Sarona’s funds were MEDA members,” Pries said. “MEDA members got it. They understood. When we explained what we were doing, it made complete sense to them. But it did not make sense to institutional investors. It did not make sense to governments.” Sarona was investing in the same sorts of businesses in developing nations as MEDA members were running in North America, he said.
Many people encouraged Pries to seek only larger, institutional investors for its funds. But he wanted to keep the door open for North American entrepreneurs to make investments in companies in the Global South. “It’s an equitable, balanced relationship.” Building a business that was committed to enfranchising employees and staying close to MEDA members and entrepreneurial families have been important values for Pries. “Those things may have limited our growth, but it’s not something that I regret at all.”
Pries is thrilled that because he stepped out of day-to-day operations, Sarona was able to promote three other people into partnership. “Every organization needs new eyes, new leadership, new blood. Serge is the right person for Sarona at this time. I’m thrilled with where Sarona is at.”
Pries does have some regrets about the disappointing performance of SAM’s first fund. He is happy that two subsequent funds are doing well. It is a difficult time for the private equity industry, particularly for companies with less than $5 billion in assets. The McKinsey consulting firm’s Global Markets Review 2023 report is subtitled “Private Markets turn down the volume.” The report cites plummeting deal volumes, declining performance, and falling valuations since the second half of 2022. “A lot of funds are not coming to market in 2023; they may come back in 2024,” LeVert-Chiasson said. “You’re not seeing the growth you’ve had historically, particularly in emerging markets.”
But Sarona has ambitious growth plans for the next few years. One of its most significant institutional partners, the Australian government, has announced plans to ramp up its investment in Australian Development Investments (ADI, previously called the Emerging Markets Impact Investment Fund or EMIIF). Sarona manages ADI in a consortium with Sagana (a Swiss advisory firm) as a technical assistance provider. Under the plan, investment in ADI will increase from $40 million Australian dollars (about $25.8 million US) to $250 million Australian dollars ($161 million US) within the next three years.
Over the years, Sarona has worked to build its brand, knocking on many doors to introduce the organization. The Australian initiative has helped Sarona “gain global recognition for the work we’ve been doing for 14 years, and we’re seeing a lot more inbound inquiries,” LeVert-Chiasson said. “Now people are calling us to see if we can work together. We’re getting a lot of interesting business opportunities.”
Sarona’s three-year strategic plan includes increasing its assets under management 2.5 times, from $400 million to $1 billion by mid-2026. It also wants to use its history as trailblazers to work towards “democratizing impact investment.” This work will include gender and climate considerations as investment criteria.
The $1 billion target for assets under management could help Sarona get more attention from large institutions. Firms that fall below the size that the industry calls “escape velocity” often cannot get bigger players to talk to them, Pries said. Increased revenue and profitability are important to allow Sarona to invest in new products and services, LeVert-Chiasson said.
“None of this can be accomplished without dedicated, motivated, well-trained, well-resourced teams.”
The company currently has 20 full-time staff, whose compensation includes profit sharing, investment performance bonuses, and a share ownership plan. The firm is launching a new product. Sarona’s Shared Services will provide back and middle office services, including financial, legal, structuring, and impact reporting for emerging managers in the impact investment ecosystem. “We expect those new services to account for half of our $1 billion in assets under management in 2026.”
“Now people are calling us to see if we can work together. We’re getting a lot of interesting business development opportunities.”
— Serge LeVert-Chiasson, Sarona Asset Management’s managing partner and chief compliance officer
Sarona has built its business on a fund-of-funds private equity approach. LeVert-Chiasson says it is not likely that the company will move to direct investment in companies in emerging markets. Firms that will succeed in that space need to be “100 percent devoted to that strategy, and have the resources to accomplish that, locally. We can’t do that from Canada,” he said. “We’re figuring out what works and what doesn’t in the markets we invest in. After 14 years in this business, you kind of start to see some interesting trends and who you want to work within the market.”
In the longer term, Sarona has “a really big audacious goal.” In 10 years, it wants to be involved in every asset class in emerging markets. (That means having a product or co-branded product in public equity, public bonds, real assets private equity, private debt, and venture capital.) By 2033, Sarona aspires to be “a one-stop shop if you want to do impact investments in emerging markets as part of a diversified, multi-asset class fund.”
It can currently only do business with governments, institutions, and high-net-worth, accredited individuals. Twenty years down the road, Sarona wants to be able to offer products for retail investors as well. “It’s the hardest nut to crack. In 20 years, we hope that we’ll be able to have impact investment products for emerging markets available to retail, institutional, and government investors.”
