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| Strategic Investment Funds
BOX 6.6
Exercising active ownership Funds exercise active ownership in several ways, including the following: • Exercising their shareholder rights in order to affect key strategic decisions (as applicable). • Appointing fund representatives to the company’s board (the number of board appointees reflecting the size of the fund’s equity stake) and therefore exerting influence on board decisions. • Nominating board representatives to relevant board committees such as audit, nomination, and compensation. • Designing (already in the deal evaluation phase) and working with the company’s management to implement value creation plans encompassing operational, financial, and governance
• • •
•
improvements. A fund may appoint a portfolio management team specifically committed to this task. Engaging in regular discussions with the company’s management. Conducting regular company visits. Enforcing and supporting the application of the fund’s environmental, social, and governance standards. Establishing clear reporting guidelines, enabling the fund to conduct regular performance evaluations of portfolio companies. Reporting obligations will typically exceed those envisaged by applicable legislation and include, for instance, a series of key performance indicators specific to the company’s business.
Sources: World Bank, based on Invest Europe (2018) and review of select SIF and private equity fund private placement memoranda.
which the portfolio company is incorporated all affect the fund’s level of activism (Invest Europe 2018). Within this general context, SIFs approach active ownership in a distinct manner that reflects the double bottom line mandate and affiliation with public sponsors, specifically: • SIFs can enhance the visibility and credibility of portfolio companies with prospective customers as well as future capital providers. For instance, ISIF’s portfolio companies receive a credibility boost from their affiliation with a large government-backed fund. • SIFs can attract co-investors with deep industry expertise that can support a portfolio company’s implementation of financial and economic value creation plans. For instance, as discussed in chapter 5, NIIF was able to establish a platform with DP World, the Dubai-based port terminal owner and operator, to invest in ports, terminals, transportation, and logistics businesses in India. DP World controls the platform with a 65 percent stake, and the NIIF Master Fund is a significant minority investor with the remaining 35 percent of the equity. The platform will invest up to US$3 billion of equity to acquire assets and develop projects in the sector (see the NIIF case study in appendix A). In addition to financial and operational metrics customarily tracked by PCFs, SIFs will want to track portfolio companies’ compliance with the economic return mandate. ISIF, for instance, monitors compliance with its economic impact objectives semiannually at the portfolio company level and annually at the overall portfolio level. Every February and August, portfolio companies fill out an impact survey, with data such as revenues, employment, and exports. In addition, each year ISIF compiles an annual control report that measures the performance of all portfolio companies against financial and impact targets (see the case study in appendix A).
