This week, our Catalyst Strategies team are at the Global Impact Investing Network (GIIN) Investor Forum to talk about our approach to innovating with ‘catalytic capital’.
So, what does this approach involve, where has it emerged from, and what have we learnt about innovating with catalytic capital so far?
For over 70 years, CDC has invested for economic development. More recently, spurred by the urgency of the world’s critical challenges and global momentum towards the Sustainable Development Goals, we asked ourselves: how could we make our money work even harder for impact?
We partnered with the UK Government to design a new capital commitment with greater risk-return flexibility. Today, we have commitments and pipeline of over $500 million through 2019, and up to $1.5 billion of capital to put to work from 2020.
We manage this capital through a set of unique ‘Catalyst Strategies’, investment strategies designed to shape nascent markets and build more inclusive and sustainable economies. Given we’re investing in markets where there are few precedents or benchmarks, we take a flexible approach to risk in exchange for pioneering impact.
We take two approaches to investing with catalytic capital. Firstly, there’s our ‘generalist’ Catalyst Strategies which allow us to explore a broad range of investments addressing persistent market failures or building on emerging trends. These investments aim to enhance inclusion, promote innovation, or reach deeper into frontier markets.
What does this look like in practice? As an example, under our generalist strategy we invested in Novastar Ventures, a venture capital fund manager that invests in early-stage companies targeting low income mass markets in Africa. We recognised the opportunity to support this important segment of the capital markets and invested in Novastar’s first and second funds. Through Novastar, we’ve seen how an investment fund manager’s support for small, innovative companies can make a big difference.
Our ‘thematic’ Catalyst Strategies on the other hand target a need within a sector. For example, to close gaps in value chains, financing, inclusion or sustainability. We currently manage three thematic strategies:
- Energy Access and Efficiency, which aims to increase off-grid access to clean energy and provide finance for resource-efficiency projects, through local currency lending.
- Gridworks, a platform wholly owned by CDC, which targets equity investments in transmission, distribution and off-grid electricity in Africa.
- MedAccess, again a platform wholly owned by CDC, which has a mission to make global healthcare markets work for everyone by increasing patient access to life-changing medical supplies.
The flexible risk appetite with which we make these kinds of investments has allowed us to test this groundbreaking model and catalyse life-changing market improvements. But this new approach has also raised many questions. For example, how do we define what a ‘good’ Catalyst investment is, in a way that avoids us merely going after bad investments? What types of risk are we willing to take, and which will never be in scope?
That’s why this week, we’ve shared some of these lessons in this article on Impact Alpha.
We look forward to working with our partners and investors as we build on these lessons, and ensure that we successfully innovate for impact – without sacrificing investment rigour.
Yasemin Saltuk Lamy
Deputy Chief Investment Officer