Strategic Investment Funds

Page 154

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| Strategic Investment Funds

BOX 5.4

Investor protection provisions in shareholder agreements In minority transactions, strategic investment funds must protect themselves against downside risks arising from lack of control through proactive engagement with the majority owner and careful negotiation of the shareholders agreement. Minority private equity owners need to invest in building a relationship with the majority owner, understand its motivations, anticipate potential areas of misalignment, and plan for both the ownership and exit phases (Schneider and Henrik 2015). In addition, several provisions of the shareholders agreement—the main contractual document disciplining the relationship between shareholders of a company—can be negotiated to ensure alignment of interests between minority and majority owners. General investor protection provisions in shareholders agreements include the following. • Right to approve key actions: –– Minority shareholder’s right to approve board actions in critical areas, for instance, issuing stock, incurring debt, and acquiring or selling significant assets.a For practical purposes, this veto right should not extend to the day-to-day operation of the company. –– Supermajority provisions requiring a portion of the minority shareholders to also approve corporate actions such as a merger or the sale of substantially all of the company’s assets.

–– Subjecting amendments of the shareholders agreement to the approval of some or all minority shareholders. • Restrictions to the transfer of shares, including –– Right of first refusal, allowing any nonselling shareholders to buy the stake of a selling shareholder on the same terms offered by a third party; –– Tag-along right, allowing the nonselling shareholders to force the selling shareholder to include their equity in the sale to a third party, on the same terms; –– Drag-along right, allowing the selling shareholder or the board to require the other shareholders to sell their stakes to a third party;b and –– Put and call provisions, giving a shareholder the right to sell its stake to the company or other shareholders (put), or allowing the company or certain shareholders the right to buy another shareholder’s stake (call). • Preemptive rights in case of issuance of new e­ quity, giving shareholders the ability to m ­ aintain their proportionate stakes by ­buying additional shares at the same price offered to other shareholders or third parties.

Sources: Greenberger 2001; Hewitt 2021. a. The approval may be unanimous or include a percentage vote of the minority shareholders. b. This provision is usually required by the controlling shareholder as a counterbalance to the tag-along right, as a way to prevent minority shareholders from jeopardizing the sale of the company by refusing to participate (see Greenberger 2001).

raises new capital through the primary issuance of shares. Minority deals are more common in emerging market and developing economies, an important consideration for SIFs that operate there.27 Minority deals have several attractions for SIFs. First, when minority deals result from new equity issuance,28 SIFs have the opportunity to support companies in their growth trajectory (Schneider and Henrik 2015). Second, minority deals allow SIFs to participate, together with other investors, in larger transactions that they would not be able to finance exclusively.29 Third, they may facilitate co-investments in the target company, fulfilling the SIF’s crowding-in objective30 and mitigating the risk of crowding out private investors.31 Fourth, if a SIF catalyzes the involvement of a majority co-investor with strong operating expertise and industry track record, it can improve


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References

17min
pages 296-303

Notes

2min
page 295

Staffing and recruitment

2min
page 292

Investment strategy

2min
page 284

Portfolio and track record

2min
page 285

13.2 NSIA-NIF core governance bodies

6min
pages 289-290

Mandate for investment

2min
page 283

12.2 Summary of NIIF Limited’s governance bodies

3min
page 277

Legal structure

2min
page 282

Background and mission

1min
page 281

Governance

2min
page 275

Additionality and multiplier considerations

2min
page 274

12.2 NIIF’s Master Fund structure

4min
pages 272-273

12.3 NIIF’s governance structure

2min
page 276

12.1 NIIF’s anticipated fund size and investors at time of writing

5min
pages 270-271

12.1 NIIF structure

4min
pages 268-269

11.1 Key features of the Luxembourg SCSp

2min
page 264

11.4 Marguerite’s ESG assessment throughout the investment process

4min
pages 265-267

11.3 Summary of Marguerite II’s core bodies and functions

2min
page 263

impact report

4min
pages 246-247

10.6 ISIF Irish Portfolio risk categories

11min
pages 248-252

11.1 Marguerite II’s eligible sectors

6min
pages 257-259

10.4 ISIF investment decision process

1min
page 245

10.4 Summary of ISIF’s governance bodies

2min
page 244

10.1 Structure of NTMA and ISIF

4min
pages 236-237

December 31, 2018

7min
pages 238-240

writing

4min
pages 227-228

9.2 Summary of FONSIS governance bodies

3min
page 229

9.4 FONSIS organizational structure

12min
pages 230-235

9.1 FONSIS’s solar investments

2min
page 223

8.3 Summary of ACP’s governance bodies

2min
page 214

References

6min
pages 202-206

8.1 Breakdown of ACP’s committed capital, by source

1min
page 208

Notes

2min
page 201

7.1 Financial reporting standards of select SIFs B7.7.1 Comprehensive sample of metrics disclosed in ISIF’s economic

2min
page 197

7.6 Core components of disclosure for a strategic investment fund

1min
page 196

mechanisms of disclosure

2min
page 195

Unique features of the transparency and disclosure framework for SIFs

2min
page 198

Legal and regulatory context

2min
page 192

Linaburg-Maduell Transparency Index for SWFs

2min
page 191

guidelines

2min
page 190

Key takeaways

2min
page 200

Introduction

1min
page 185

Global transparency and disclosure requirements

2min
page 186

principles for SWFs

5min
pages 187-188

Investment Fund Managers

2min
page 189

References

2min
pages 182-184

6.7 Investment exit: The case of Marguerite

2min
page 180

The NSIA-NIF example

2min
page 172

6.2 FONSIS: Originating investment opportunities as a project developer

2min
page 173

6.6 Exercising active ownership

2min
page 178

Investment exit

2min
page 179

6.2 NSIA-NIF investment evaluation process and responsibilities

2min
page 175

Investment origination

2min
page 171

6.1 Phases of the SIF’s investment process

1min
page 170

References

3min
pages 167-168

Introduction

1min
page 169

Notes

9min
pages 164-166

Risk management framework: Key concepts Components of the risk management framework

5min
pages 157-158

and key actors

7min
pages 160-162

Key takeaways

2min
page 163

5.4 Investor protection provisions in shareholder agreements

8min
pages 154-156

infrastructure SIFs

7min
pages 150-152

5.1 Investment policy–related guidance within the Santiago Principles

5min
pages 142-143

Components of the investment policy

10min
pages 145-148

Key actors in the investment management framework

2min
page 144

References

3min
pages 138-140

4.7 Typical terms of a limited partnership agreement

6min
pages 133-134

4.5 Indicative RFP content for external manager selection

2min
page 131

4.7 Recruiting an external manager for a SIF: PINAI

5min
pages 129-130

4.6 Staffing the NIIF

2min
page 128

equivalent structure

10min
pages 124-127

4.4 SIF board functions

11min
pages 120-123

Key decision-making bodies and their functions

5min
pages 108-109

Authority

5min
pages 111-112

4.2 Public sponsor ownership functions in a SIF

8min
pages 113-115

4.3 Definition of an independent board member

2min
page 116

4.4 Safeguards for government representatives on SIF boards

2min
page 117

Introduction

1min
page 105

References

5min
pages 101-104

Notes

6min
pages 99-100

Private agreements in setting up a SIF Applicability of other domestic, supranational, and

2min
page 90

3.7 National security legislation: The US example

3min
page 97

3.9 Other laws affecting SIF cross-border activities

3min
page 96

3.6 Legal structure and domicile for a variety of SIFs

2min
page 88

3.5 Most popular domiciles

2min
page 89

3.5 Examples of legal structures used by global SIFs

2min
page 86

3.4 SIFs formed entirely under commercial law

5min
pages 84-85

3.3 Common features of primary SIF legislation: Operational elements

7min
pages 81-83

3.3 Specifying the transfer of state assets into a SIF with the SIF law

2min
page 78

FONSIS

5min
pages 76-77

References

5min
pages 68-70

Notes

6min
pages 66-67

Introduction

1min
page 71

3.1 Santiago Principles: Key legal principles for SWFs

2min
page 72

2.6 Preliminary study for the Green Investment Bank, United Kingdom

3min
page 64

Preparatory studies to establish a SIF

2min
page 63

Limitations of a SIF

2min
page 59

Macrofiscal implications of a SIF

2min
page 57

2.4 Santiago Principles and macroeconomic implications of SWFs

2min
page 58

Challenges to establishing a SIF

2min
page 60

managers

2min
page 56

Issues to consider before establishing a SIF

2min
page 62

2.7 Illustrative list of strategic alliances between global SIFs and SWFs

2min
page 53

funds

2min
page 61

Double bottom line mandate

2min
page 45

2.4 SIF mandates, examples from case studies

2min
page 46

SIF ownership and management models

2min
page 42

2.5 Managing the DBL

2min
page 47

2.6 The additional value of SIFs: Case study examples

5min
pages 50-51

Structure

2min
page 34

2.2 Palestine Investment Fund

2min
page 52

Context

1min
page 27
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