The Commonwealth Development Corporation (CDC) is set to focus all its investment activities on sub-Saharan Africa and South Asia, following recommendations from a review committee led by the UK Secretary of State for International Development, Andrew Mitchell.
The recommendations are part of wider changes to be implemented as a result of a public consultation into CDC’s reform that was launched in 2010. The changes will also see CDC revert to direct investing, a move away from the fund-of-funds model it has pursued since 2004 when it sold its 60% stake in Actis. Under the new plans, 40% of CDC’s capital will be committed to direct debt and equity investing by 2015.
As part of the changes, CDC target companies will have to undergo independent valuations in a bid to enhance transparency. Measures to better track the environmental, social and governance (ESG) standards of investee companies will also be implemented across CDC’s portfolio. Particular attention will be paid to businesses that are classified as high-risk companies, in terms of complying with ESG standards.
The review committee has also recommended changes to the remuneration of top executives following heavy media criticism of CDC pay packages. The group came under attack last year for, amoung other things, paying an estimated £1million package to outgoing chief executive Richard Laing in 2007. New packages are to be modified so that variable performance pay will be largely deferred and based on long-term performance, as opposed to yearly targets.
“These reforms deliver a more versatile and pioneering CDC,” said Richard Gillingwater, CDC’s chairman. “Our ambition is make the biggest difference possible to lasting development.”
CDC has also been instructed to guarantee debt to small and medium size enterprises, which will cover loans, bonds and trade finance. The investment group will also explore the role of technical assistance provider, to get capital to work in the most developmentally effective way.
CDC currently has an African private equity portfolio worth £877million, which includes the £122 million it invested in new businesses in 2010. The investor additionally committed funds to eight Africa-focused managers last year, including a maiden East Africa focused fund Catalyst Principal Partners I.
“We will achieve the highest development impact by targeting our capital and expertise where it is most needed in the poorer countries and regions of sub-Saharan Africa and South Asia,” said Gillingwater.
