Sarona to raise follow-on EM fund-of-funds

The $300m fund of funds will target returns of about 20% through investments with mid-market private equity funds in frontier and emerging markets, potentially including agriculture-focused funds.

Canadian private equity firm Sarona Asset Management is raising a $300 million impact-minded fund of funds, Sarona Frontier Markets Fund 3.

Sarona will aim for a net internal rate of return close to 20 percent by making between eight and 10 investments of between $10 million and $20 million, each with locally-based managers in low- and middle-income countries of Asia, Africa, Latin America and Europe, a source familiar with the fund told Agri Investor.

While many of the fund of funds’ investments will be focused on education, healthcare and financial inclusion, it will consider vehicles investing in the food production and distribution sectors, the source said, noting that “agriculture is at the nexus of consumer demand, local supply, dearth of capital, high potential impact and high potential returns.”

The source said Aqua Capital’s upstream-focused Agribusiness Latin America II Fund, which nearly reached its $350 million hard-cap in March, is among the funds Sarona will look to invest in. The firm is seeking to draw commitments from pension funds, endowments, family offices, high-net-worth individuals and developmental finance institutions.

More broadly, the firm is looking to invest in funds responding to domestic consumer demand in frontier and emerging markets while also supporting progress towards the UN’s sustainable development goals. In order to be considered for an investment from Sarona, a fund must have a target size of between $40 million and $500 million, according to the firm’s website.

The predecessor fund, Sarona Frontier Markets Fund 2, followed a similar strategy. That fund closed on $150 million in 2014 and is currently fully deployed. In addition to private capital, it attracted investments from the US Overseas Private Investment Corp. (OPIC) and Global Affairs Canada.

Sarona is a frontier and emerging markets-focused private equity fund that grew out of a 1953 investment in a Panamanian dairy operator. Headquartered in Ontario, Canada, the firm has about $200 million in assets under management, according to PEI data, and also maintains an additional office in the Netherlands.

Its previous agriculture-related investments through funds have included Indian pipe and water storage provider Vectus Industries, Colombian non-bank financing company Grupo Factoring de Occidente (GFO) and ProDev Holdings Group, a Rwandan company active along the maize value chain.

Sarona declined to comment on the fund.