The Africa Agriculture and Trade Investment Fund is seeking a new investment manager after its five-year contract with Deutsche Bank expired, AATIF board member Doris Kohn told Agri Investor.
AATIF operates as a public-private partnership between the German government, KfW Development Bank and institutional investors, focused on delivering returns while supporting political, social and commercial development in Africa. AATIF has not ruled out continuing its partnership with Deutsche Bank, but is pursuing a competitive bidding process to ensure it gets the best possible deal, Kohn said.
“We did pre-qualify Deutsche Bank, so they can resubmit,” said Kohn. “But we want to test the market and see what other offers we get.”
The impact investment, debt-focused fund’s new manager will need to source and execute deals in the African agriculture sector.
AATIF has roughly $140 million deployed in African agriculture operations, including an $8 million equity investment in a South African tomato processing operation. The rest is deployed through secured debt investments in financial institutions, intermediary operators and direct lending. Although the fund has latitude to make equity investments, secured debt will continue to account for more than 90 percent of the fund’s investments, said Kohn.
[quote]We’re not the sort of fund that’s looking to invest in 20 investments that sink to find one rising star[/quote]
Deutsche Bank won the tender for the secured debt-focused fund when it first launched in 2011. The bank created ways to help smallholder farmers and agribusinesses access debt, introducing innovations such issuing barcodes and mobile phone services for credited smallholder farmers, one Deutsche Bank manager told Agri Investor. She added one of the biggest challenges to lending in Africa was finding small- and medium-sized agribusiness clients. She added lack of liquidity to weather a business crisis was one reason why smaller businesses are perceived as very risky, even by many impact investors. Finding solutions to the problem would be key to developing agribusiness in Africa, she said.
AATIF looks to create stable returns for institutional investors. Public funding sources, primarily from the German government, take on a higher risk profile in exchange for economic advancement for smallholder farmers and other ESG concerns. Other impact investors use a similar strategy. KMO, for example, funnels a portion of fund from the Dutch government into higher-risk, higher-impact investments, sometimes using the money to balance risk in businesses or regions where they are already stakeholders.
“We’re not the sort of fund that’s looking to invest in 20 investments that sink to find one rising star,” said Kohn. “We don’t do that sort of equity investment.”
Despite this focus on secured debt and relatively low risk profiles, challenges specific to the continent mean all investment in the sector will come with significant risk. However, Kohn says the region offers tremendous potential for returns, both social and financial.
“We are in Africa and we deal with agriculture, which is risky. But we think there’s also a lot of opportunity in it,” she said.