Access to capital for enterprises in challenging circumstances

19/07/21

Dutch Good Growth Fund

Launched in 2014, the Dutch Good Growth Fund (DGGF) – a 350 million euro impact fund – is a fixture in the Ministry of Foreign Affairs’ policy toolbox for promoting entrepreneurship and job creation in emerging markets and fragile countries. The Ministry recently extended the mandate for co‑managers PwC and Triple Jump by five years until 2029. PwC’s Lennart Konijnenberg, an expert in setting up implementing organisations, is very pleased.

'The Ministry has been bold enough to place the DGGF in the market as a fund that can make risk-bearing investments worldwide with public money. That’s unique, just like the fact that we, together with Triple Jump, have made a comprehensive offer to take on that challenge.'

Especially for female and young entrepreneurs

The DGGF supports SMEs in fragile countries, focusing on 'the missing middle', i.e. start-ups and scale-ups that are too big for microcredit but too small and too high-risk for banks. It pays special attention to female and young entrepreneurs, target groups for whom access to financing is particularly difficult. The DGGF is what’s called a 'fund-of-funds', meaning that it invests in local fund managers and financial institutions that in turn invest in individual companies. A special feature of the DGGF is that part of the capital is earmarked for awareness-raising and training for these local intermediaries. The DGGF supports them, for example, in setting tax and ESG standards for their investments and in measuring the impact on those aspects.

Customised for client and target group

Managing an impact fund is not one of the core tasks of the Ministry of Foreign Affairs; the DGGF was therefore set up as an independent implementing organisation outside the Ministry. Lennart Konijnenberg explains: 'Our contribution consists, on the one hand, of setting up and designing the implementing organisation – including such aspects as governance, accounting, risk management, and IT – and, on the other, due diligence as regards ESG and Tax. After all, it’s about Good Growth, whereby investments have to fit within the applicable ESG frameworks and must be in line with the latest insights in the field of sustainable tax. We use our in-house knowledge of such things as ESG factors in investment and sustainable finance, and the tax and legal aspects of fund management. Our approach is geared entirely to the wishes and objectives of the client and the target group. That’s where our strength lies.'

Impact fund as a policy-rich instrument

Just like the Ministry, PwC isn’t a manager of impact funds. 'So as to pool all the necessary competencies, we have therefore formed a consortium with Triple Jump,' says Lennart Konijnenberg. 'Triple Jump has extensive knowledge and experience with impact funds and it’s present in many of the countries targeted by the DGGF. PwC and Triple Jump have been co-managers since the fund’s inception, and the impact fund is now functioning as a policy-rich instrument. This has everything to do with the guidance possibilities available to the Ministry within this set-up. We don’t only discuss progress with one another on a very regular basis, but we also constantly ask ourselves how we can keep our investment mandate relevant to the Ministry’s policies and priorities. During the refugee crisis, for example, it was a policy choice to release money to improve conditions and prospects for the people concerned. The DGGF then selected a number of specific funds for that purpose, which of course fitted in with the investment strategy.'

'The DGGF has been a pioneer for investment with a strong focus on impact and a high risk profile. We’ve now shown that investing in this way is possible. The DGGF has built up an investment portfolio within a relatively short period of time, meeting all sorts of ESG criteria, for example regarding transparency, the use of tax havens, and the measurability of impact.'

Lennart KonijnenbergPwC

Support for 8200 SMEs, 61,000 new jobs

Seven years after it was set up, the DGGF has recently become fully committed: the capital deposited has been fully allocated to the local fund managers and made available for investment. With the investments already made in recent years, more than 8200 SMEs have been assisted in sixty countries and more than 61,000 jobs have been created and supported. This includes a chicken hatchery in Zimbabwe and a private equity fund in Afghanistan that in turn invests in an insurance company, a satellite communications provider, and a saffron producer. These figures are expected to increase in line with the investments being given more time to generate returns.

Profitable investment portfolio based on ESG

The DGGF has been a pioneer for investment with a strong focus on impact and a high risk profile. 'What we are doing as a fund is pretty unique', says Lennart Konijnenberg, 'certainly with our budget for strengthening local investment funds as regards ESG. We’ve now shown that investing in this way is possible. The DGGF has built up an investment portfolio within a relatively short period of time, meeting all sorts of ESG criteria, for example regarding transparency, the use of tax havens, and the measurability of impact. Based on results, we expect to remain nominally revolving despite the COVID-19 pandemic. In other words, social returns can go hand in hand with sufficient financial returns. And the great thing is that the market also recognises this, and big pension investors are now increasingly adding social return requirements to their portfolios.'