Evidence submitted by Phatisa Group Limited, an African private equity fund manager focused on the food value chain in Africa, which has received investment from BII.

 

 

At Phatisa we have raised capital for our impact funds from many of the European, US and African development finance institutions. There is strong alignment across all DFIs to focus on the UN’s SDGs – BII is no different. We see core themes as climate, alleviating poverty and hunger and promoting inclusivity and gender equality.

 

 

The oversight is strong, focused in the right areas but equally not overbearing so as to stifle investment. BII has carefully thought through legal terms that it includes in its investment agreements and side letters. These give BII the requisite information rights, controls and an ability to remove a fund manager (GP) if BII and fellow investors (LPs) are not satisfied with performance or should there have been breaches. BII requires quarterly reports on the Fund’s performance, again the format agreed upfront to give BII full oversight. The BII team follow up with questions on such reports to clarify information provided, sometimes asking for additional documentation to verify. There are stringent controls around drawdowns from BII and the Fund holding cash not used in an investment and requirements to return funds within a specific time period to be re-drawn again when required. BII has a seat on the Advisory Board of the fund which meets at least twice a year. Outside of the formal reporting channels, BII and the Phatisa team are in regular conversation – the interaction is regular and high quality.

 

Business Integrity (BI) is a stringent requirement both on the fund manager, directors, shareholders, team members and other investors and thereafter the underlying investments. BII has provided training for BI and regularly monitors – requesting the BI information on underlying investments and updated KYC on the manager and fund annually.

 

Impact reports are agreed upfront and provided frequently to BII

 

ESG– for the first 3 investments made by the fund, BII required the ability to review and sign off the ESG due diligence and corrective action plan put in place by Phatisa. 

 

BII encouraged, and we have put in place, an E&S Committee on which BII and other DFIs are represented. It meets quarterly to discuss ESG, impact and climate around the funds proposed and actual investments and sharing best practice and guidance with the fund manager.

 

BII has also invested alongside the Fund directly into investments (co-investments) and in such instances undertakes due diligence alongside the Phatisa team and runs its own approval process and if the investment is made, BII sits on the Board of the underlying investment alongside the Phatisa team.

 

 

BII and Phatisa share the same ethos that financial and impact returns are not mutually exclusive. Investing for growth in Africa and with such investment undertaken in accordance with World Bank performance standards and BII ESG guidelines and BI requirements will by nature deliver impact. Furthermore, driving better ESG (through corrective action plans), impact and improved systems and processes will enhance the value of an investment for the next potential acquirer and deliver financial returns. Impact and financial returns go hand in hand. BII typically targets a hurdle (minimum return) on its private equity funds of 8% in dollars. It is only when this return has been achieved can the manager start to share in profits. Thereafter the manager and BII are aligned on financial performance. But this is without compromising impact and ESG.

 

BII has a development impact (DI) team, as well as a gender team and a resource efficiency team. Both the DI and the gender teams engaged us directly for fund-level and direct investments, i.e. at the point of deciding whether to invest. 

When assessing impact, BII considers, for example, the following criteria (among others):

BII has an impact scoring methodology which they have applied to our portfolio investments and, like us, they are a founding signatory to the Operating Principles of Impact Management. Their impact management process is, like ours, aligned to the 5 dimensions of impact as defined by the Impact Management Project, now Impact Frontiers (what, who, how much, contribution and risk).

As part of the due diligence process undertaken on Phatisa as a fund manager (when determining whether to invest in our second food fund, PFF 2), BII undertook a thorough review of our impact processes, including our impact measurement and management framework, our impact strategy commitment and targets, our impact scoring tool, assessment of historical impacts achieved, our monitoring, evaluation and reporting processes, and internal capacity and capability to invest intentionally for impact. This is all over-and-above mandatory ESG due diligence which was a separate process and also performed thoroughly, including commissioning of an independent environmental and social due diligence (ESDD) on Phatisa’s operations and review of our E&S management procedures. A fund-level ESAP was developed, in collaboration with BII, which we are pleased to report, has been successfully closed-off. 

 

In all, when considering whether to make an investment (whether into a fund or a direct investment), it is our perception that the impact of the fund or portfolio company is as important a decision criteria as potential for financial return and the processes of assessment are rigorous and comprehensive. That is, in our opinion, BII makes holistic investment decisions based not only on financial return and risk assessment, but potential to achieve lasting, sustainable impact for people and the planet. We are proud to have undergone BII scrutiny and found to be up to the challenge of achieving tangible impacts in the food value in sub-Saharan Africa.

 

 

 

As an external, we have witnessed that this resulted in a cash flow squeeze for BII and reduced capital available for new investments. Therefore, slowing the ability to deliver impact.

 

 

For a fund manager like Phatisa, the due diligence was thorough. A due diligence questionnaire was provided by BII, based on the ILPA Guidelines. A data room was set up based on this to provide BII with evidence to the responses provided. BII spent time physically with the manager as well as continuous online interactions, visiting past and prospective investments. BII also undertook individual interviews of all team members to get a clear insight into the firm. Business Integrity and Know Your Client was thorough. The fund’s financial model and assumptions were interrogated in detail. BII’s ESG/Impact team also visited, reviewed past investments and met with Phatisa’s Sustainability Team to confirm the requisite skills set as well as enhance the framework and policies. BII also undertook extensive referencing on Phatisa, its investments and the team.

 

In addition, BII employed Ankura to undertake an extensive operational due diligence on Phatisa. This went deep into Phatisa’s operating procedures, controls, safeguards and governance. It also provided recommendations to enhance systems and processes. A plan was agreed between BII, Ankura and Phatisa and this was successfully implemented over a 6 month period with BII monitoring.

 

BII’s processes absolutely compare with international best practice. In certain areas such as operational due diligence, ESG and impact, then BII is more thorough than traditional commercial investors. 

 

BII has invested into Phatisa Food Fund 2. https://www.phatisa.com

 

At Phatisa, we are committed to the principle of 'and' – as opposed to 'or'. Meaning, we focus on delivering impact & returns. Planet & profits. Growth & responsibility.  We do not believe that financial performance and impact are mutually exclusive – rather, mutually beneficial.

 

We are driven by a passion to positively impact the lives & livelihoods of African people.  And achieve this ambition by investing into the food value chain and affordable housing - to create inclusive businesses that maintain their commercial focus while addressing societal & environmental challenges. 

 

For us, creating more just, equitable and inclusive businesses and societies is a key driver of growth. In this way, delivering impact returns is not something we do additionally, it is core to our investment strategy and how we define success. 

 

We have a hands-on approach - working closely with our portfolio companies to deliver long-term sustainable value and driving progress by finding flexible capital solutions.

 

At our heart, Phatisa has a development vision - founded in experience & creativity.  We are committed to the highest standards of excellence & safeguard alignment with our stakeholders and investors by putting our own capital behind our thinking.

 

Phatisa promise: More than capital - people & planet & profits

Promise is a strong word. It sets intent. Commitment. And accountability.

Our promise as an investor is to offer more than capital.  We have put our name & signature to this promise by becoming an early adopter and signatory to multiple sustainability & societal principles that we believe in.

 

Phatisa has over 150 years combined experience working on the ground in the continent, we are sector specialists who live & breathe Africa.  We have local insights, regional relationships & global reach. We are committed to partnering ambitious management teams to grow inclusive businesses, that actively address sustainable development challenges, like poverty, hunger, inequality & climate change. Commercial & impact considerations are embedded across our investment process - from origination to value creation to realisation.  

 

We are amongst the  founding signatories to  Operating Principles for Impact Management (the Impact Principles).

 

The Phatisa impact themes embed our business model, investment strategy and brand; they are aligned with the United Nations Sustainable Development Goals (SDG), thus adopting a language that is universally understood.

 

In 2019, Phatisa became a signatory to the Women’s Empowerment Principles, established by UN Global Compact and UN Women in 2010.

 

We have a Carbon Offset Initiative, and our aim is to sustain carbon neutrality through a combination of energy efficiency, positive environmental behaviour and growing consciousness.

 

Phatisa Food Fund 2 has made five investments to date:

 

Farming and Engineering Services (FES) is an industry-leading equipment and integrated contracting services and agricultural solutions provider to the agricultural sector in Malawi, Zambia and Tanzania. It has provided a full range of world-class products, expert technical services and practical know-how for over 50 years in the Blantyre, Nchalo, Lilongwe and Dwangwa regions.

 

Manipal Holdings Limited (MHL) is a leading printing and packaging group in sub-Saharan Africa, operating through subsidiaries in Kenya (established in 2008) and Nigeria (established in 2014). Manipal’s range of products cut across flexible packaging and self-adhesive labels among other ancillary services, and support a wide variety of industries, key among them being the food and beverage, and agriculture sectors.

 

Lona Group is one of the largest integrated fruit businesses in South Africa, the Lona Group is involved in activities across the food value chain, from: farming, aggregating and packing fruit (citrus, mango, grape, olives, and stone fruit), to: cold storage and logistics, marketing fruit for export and domestic consumption, plus fruit and vegetable processing. With line of sight across the entire value chain, Lona has tight controls, traceability, and renowned reliability amongst customers.

 

Deltamune was established in 1995, Deltamune plays a trusted role in veterinary and public health, by developing and manufacturing vaccines used in Africa’s production animals for the food market – particularly poultry. More recently, the company has expanded its vaccination range to address the ruminant market (cattle, sheep etc.).

 

The Rolfes Group provides a wide range of market-leading products to customers through dedicated teams of industry specialists in the agriculture, food ingredients, chemicals and water treatment businesses.

 

 

BII’s management is good and effective. BII requires quarterly reports on the Fund’s performance, the format agreed upfront to give BII full oversight. The BII team follows up with questions on the quarterly reports to clarify information provided. There are stringent controls around drawdowns from BII and the Fund holding cash not used in an investment and requirements to return funds within a specific time period to be re-drawn again when required. BII has a seat on the Advisory Board of the fund which meets at least twice a year. Outside of the formal reporting channels, BII and the Phatisa team are in regular conversation – the interaction is regular and both formal and informal. BII visits regularly and creates a relationship where Phatisa enjoys the interaction, and this promotes transparency. 

 

Business Integrity (BI) is a stringent requirement both on the fund manager, directors, shareholders, team members and other investors and thereafter the underlying investments. BII has provided training for BI and regularly monitors – requesting the BI information on underlying investments and updated KYC on the manager and fund annually.

 

Impact reports are agreed upfront and provided frequently to BII

 

ESG– for the first 3 investments made by the fund, BII required the ability to review and sign off the ESG due diligence and corrective action plan put in place by Phatisa. 

 

BII encouraged and we have put in place an ESG Committee on which BII and other DFIs are represented. It meets quarterly discuss ESG, impact and climate around the funds proposed and actual investments and sharing best practice and guidance with the fund manager.

 

 

We are aware and cognisant of BII’s strategic mission to make productive, sustainable and inclusive investments. Investments are scored by BII using their scoring methodology against these three criteria. We have been engaged directly by BII’s DI team on this scoring methodology and how it is used to assess impact and make strategic decisions, such as interventions needed, or applications of lessons learned. These insights are, in turn, used to inform future investment decision making. The ‘productive’ measure assesses a company’s ecosystem contribution, the need of the good/service which the company is producing and its economic impact, including catalysing of additional investment and economic activity. ‘Sustainable’ measures include assessment of the climate-resilience of the company, its contribution or potential contribution to the net zero agenda and understanding and assessment of physical and transition climate risks, including GHG emissions and mitigation and adaptation response. The ‘inclusive’ dimension considers the impact that the investment will have on targeted beneficiaries, particularly BOP or low-income populations, and how the investment will contribute to addressing systemic inequalities, e.g., around income, gender and race.   

 

Scores range from -1 to 4 in the three areas, meaning it is technically possible to achieve more than 10 or less than 1. However, the score is capped at 10 and the final score is used for strategic decision-making. The higher the score, the more aligned the investment is to BII’s impact thesis and intent and therefore the more likely BII is to consider the investment. 

 

We provide data on an annual basis and on an ad-hoc request basis, which we understand, they use for impact scoring. We find BII to be an active and engaging LP, always ready to provide opinions, guidance and support when requested.

 

BII provides a number of free trainings which both Phatisa employees and our portfolio companies attend. Additionally, the organisation has committed funds to our technical assistance facility, TAF 2, for projects aimed at achieving catalytic impacts beyond core business support, such as extension services for smallholder suppliers, developing strategies to reach BOP consumers, and the development of strategic net zero business plans and roadmaps. We are also engaging the BII resource efficiency team to access subordinated debt which will help our companies transition to renewable energy, and potentially also, if identified as necessary, less water-intensive operations.