LP interview: British International Investment

Founded in 1948, CDC Group, the UK’s development finance institution (DFI), claims to be the oldest organisation of its kind globally. Changing its branding for the first time ever last month was therefore no small decision.

The new name, British International Investment (BII), is intended to leverage a perceived national reputation for sustainable and equitable outcomes, ethics, standards, and transparency. The move has come with a commitment to invest GBP 1.5-2bn (USD 2-2.5bn) by 2026, which implies a 30% increase in the rate of deployment across asset classes.

Asia and climate are major themes in the pivot. Already an established player in India, BII will push deeper into South Asia and expand into Southeast Asia. There are plans to open a Singapore office in mid-2022, which could house 3-4 professionals focused exclusively on climate-related themes.

Infrastructure, including renewable power generation, looms large in this strategy. BII wants its entire portfolio to achieve net zero emissions by 2050. About USD 1b was invested in climate projects between 2017 and 2020. That number is set to hit GBP 3bn over the next five years.

“Our capital will be much more catalytic in nature, particularly in terms of taking pre-construction risk in climate investments,” explained Srini Nagarajan, a managing director and head of Asia at BII. “There is a lot of green money globally looking for platforms that are well run with stabilised cash flows. Our job is to mobilise that external capital.”

Nagarajan became BII’s first overseas employee in 2013 and has focused on building up the Asia portfolio in equity and debt. His leadership in terms of marshalling external capital in climate and greenfield infrastructure is arguably best encapsulated in the creation of India’s Ayana Renewable Power platform in 2017.

BII seeded Ayana with an initial USD 100m and went on to attract an additional USD 630m from the likes of the Indian government’s National Investment & Infrastructure (NIIF) platform and Green Growth Equity Fund. The latter is anchored by NIIF and the UK government, and managed by BP and Everstone Group. Ayana’s portfolio has scaled to 4 gigawatts of capacity to date, 1 GW of which is operational.

India and the rest

BII’s assets under management (AUM) are currently around USD 7.1bn compared to USD 4.8bn as recently as 2016. In terms of geography, South Asia makes up 31% of the portfolio versus 60% for Africa. India represents by far the largest single country allocation, with some USD 1.8bn, or around 25% of the portfolio.

Beyond Ayana, standout direct investment activity includes grocery delivery app BigBasket and logistics provider Ecom Express. The former was acquired earlier this year by Tata Group at a valuation of USD 2bn; the latter has raised more than USD 300m from BII and Partners Group since 2019.

BII is currently invested in about 65 Indian funds, with recent commitments including SAIF India, now known as Elevation Capital, 3one4 Capital, and Chiratae Ventures. Specialist GPs have been of growing interest, among them agriculture technology-focused Omnivore Partners and HealthQuad, a VC investor associated with healthcare private equity firm Quadria Capital.

Direct investment and intermediated equity represent 37% of 35% of AUM, respectively, while debt accounts of 24%. Cheque sizes for direct deals fall in a range of USD 1-15m; fund commitments vary more widely from as low as USD 10m to as much as USD 100m.

Specialist funds tend to receive larger commitments. This has come with a gradual shift in recent years from generalist GPs toward more targeted impact, sustainability, and environmental strategies. Venture capital, seen as impactful in its ability to reduce the costs of goods and services, is also increasingly attractive.

“We’re being far more selective in terms of GPs. We respect that the private equity funds are our extended arms, and we will work with them as long as they are helping us to strengthen our core development impact PSI [productivity, sustainability, and inclusivity] score,” Nagarajan said, referencing a formalised impact measurement process based on the framework known as Operating Principles for Impact Management.

“Equity investments is an important asset class for us, and we look at it through direct investments where we actively manage and collaborate with funds in terms of passive co-investment, and the fund managers help us manage those portfolios. We’ve done that successfully in India, and we’re definitely planning on rolling it out in other parts of Asia.”

Recent traction around South Asia includes a fund commitment to Pakistan’s Fatima Gobi Ventures, an early-stage investor set up by local conglomerate Fatima Group and China’s Gobi Ventures. BII’s first investment to Pakistan came in 2015 with the mobilisation of USD 157m for the Gulpur hydropower plant and Habib Bank, the country’s largest bank.

There has also been a spate of recent activity in Nepal, where BII has joined several other DFIs in the second impact fund of Dolma Fund Management and separately co-launched a platform called Nepal Invests. BII entered Nepal in 2019 with a USD 15m investment to NMB Bank and hired a Kathmandu-based country head, Rabi Rayamajhi, the following year.

India will remain the core of the Asia strategy, however. “Private equity fund managers in India have come a long way, especially in terms of sector expertise,” Nagarajan said. “I think they understood that by narrowing down to fewer sectors rather than being too generalist, they were able to focus on portfolio management, add value to investee companies, and manage cycles better.”

The most tangible rewards of the India story are in the burgeoning exit market. Rainbow Hospitals, for example, went public last week with the institutional allocation 39x oversubscribed. The Hyderabad-based paediatrics specialist was one of BII’s first direct private equity deals in 2013, when the DFI joined a USD 16.4m investment alongside Abraaj Group, a now-defunct portfolio GP.

A gender lens

India will also continue to be a talent hub for building out the global team, which currently includes about 45 Asia-focused professionals. In addition to India, Nepal and the pending base in Singapore, there are now offices in Bangladesh, Pakistan, and Myanmar, although Nepal and Myanmar are each covered by a single investment professional. Indonesia, Vietnam, and the Philippines are next.

Nagarajan stresses that the push into Southeast Asia is all about climate and that investments in the subregion will be limited to that theme. But BII’s global rebranding is hoped to clarify a broader sustainability agenda to be pursued across Asia, especially in terms of gender-lens investing.

The flagship effort here is the 2X Challenge, a women’s empowerment initiative for developing markets that BII helped set up at the G7 Summit in 2018. The program has received commitments of USD 11.4b as of 2020, mostly from DFIs. Another USD 15b is hoped to be rallied for the 2021-2022 period.

“We have to make sure gender is balanced at all levels, from senior to middle and junior management and so on – but that has to start by creating diversity in the boards we sit on. Right from our investment, we tell them, ‘If you want long-term patient capital with a lot of credibility, you have to work together with us on our gender initiative,’” Nagarajan said.

“It’s not just coming from DFIs like us but gradually from the wider LP community too. Where climate and sustainability are today, gender will be tomorrow. Companies are much better off getting themselves prepared today than tomorrow. COVID has accentuated this further.”

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• Topics
• South Asia
• Southeast Asia
• LPs
• Infrastructure
• Cleantech
• India
• CDC Group
• development finance institution
• renewable energy
• Impact investment