The Impact of Funds: An Evaluation of CDC 2004-12

CDC was founded in 1948 as part of the U.K. government’s efforts to develop the economic resources of Britain’s remaining colonies. Since then, CDC has pursued a series of strategies to “do good without losing money,” as its original mission was phrased. Its approach has included agricultural investments, project finance loans, direct private equity investment, lending, investment in and operation of power companies, and fund-of-funds investment. The group also developed an extensive network of offices and experts on the ground in emerging/frontier markets. In 2004, however, CDC was split in two groups: the portfolio of companies and the network went with the privatized fund manager Actis, while CDC remained government-owned and pursued a fund-of-funds strategy. In 2012, CDC’s remit expanded to include direct investing and lending. This article represents an effort to learn the lessons of its eight years of funds investment. In short, we determine that funds investment was an efficient method of investing large amounts of money with a small staff to build more businesses in more countries than would have been possible using a direct-investment model. CDC’s financial performance exceeded its benchmark MSCI Emerging Markets Index between 2004 and 2008, and in 2010, but restrictions in CDC’s investment parameters that were enacted in 2009 made comparisons to broader based indices more challenging. CDC has routinely met its goals for investment allocation by national income and geographic parameters and for thirdparty fund mobilization. While the dataset provided was truncated and results therefore underestimated, we could credit its investments with 345,056 new direct jobs between 2008 and 2012, $41.6 billion in new revenues, $4.8 billion in increased Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), and $2.1 billion in new taxes paid. Finally, CDC has played an extensive role in supporting first-time fund managers. Over the evaluation period, it backed 62 first-time managers (50.4% of the total funds in which it invested). Some of these have become leaders in their markets. The organization, in short, has had a transformative effort on its markets of interest. 1 We were commissioned by CDC to review its performance between 2004 and 2012, and received compensation to do so. Nonetheless, the content of this working paper reflects our opinions, and not those of CDC.