15. Investing in the right causes

Tandem Fund assists social enterprises in getting financing
TANDEM Fund calls itself a “patient investor” to social enterprises.
“For all their benefits, social enterprises find it difficult to obtain financing,” its website reads.
“On one hand, they generate returns that are too low for banks of traditional investors. On the other, they are often ineligible for foundation money as for-profit enterprises.
“Our role is to fill that gap. We act as a patient investor, providing capital to social enterprises that wouldn’t otherwise be able to gain investment.”
The venture fund, says its chief operating officer Kal Joffres, is the only one in Malaysia that invests exclusively in social enterprises.
As a not-for-profit fund, it differs from a conventional investment firm in that the returns from its investees are recycled into other social enterprises, rather than paid back as a dividend to shareholders.
A native Canadian, Joffres was a strategy consultant to non-profits and United Nations agencies prior to joining Tandem Fund.
The business and philosophy graduate from McGill University moved to Malaysia after helping a client here to start a social venture fund, which became Tandem Fund.
The fund has two sources of capital: the income from its subsidiary Tandemic, a social media consultancy, and a major banking group in Malaysia, who was the client that hired Joffres.
Tandemic – which has worked with consumer brands and government agencies – helps build social movements by organising communities around causes using social media and on-ground events.
“We started Tandemic because we thought some of our skills would be useful for companies and brands. The way we see it is a lot of organisations that are interested in social media aren’t doing it very well.
“They tell people, Here’s our latest deal, follow us on Twitter’, which is not effective. We try to engage people around causes they care about, we build communities around causes,” Joffres quips.
A portion of the Tandemic’s profit is used to finance Tandem Fund’s more experimental social enterprises.
On the second source, Joffres points out that the fund does not receive any cash for investment but rather acts as a conduit to identify social enterprises that meet several criteria, including financial sustainability and social impact. It is the bank that invests directly in the social enterprises, he says.
The social enterprises that are at a mature stage and can turn in a profit are put under Tandem Fund’s management, while the ones that more closely resemble a non-profit are directed to the bank’s philanthropic arm.
Tandem Fund has four projects under its belt: Design Change, Do Something Good, Sols24/7, and a yet unnamed mobile healthcare unit that aims to deliver medical care via waterways, especially in Sarawak.
Besides funding social enterprises, it helps streamline their operations, for example by customising a set of performance measures for each company.
On the challenges faced by fledgeling social enterprises, Joffres says this includes profitability, management skills, market access, and talent.
“A lot of social enterprises in Malaysia haven’t figured out how to make money yet. There’s still work to be done on the business model.
“They also tend to have very thin middle management. There are very passionate people running them, but it’s also important to have operational people in place to make sure things run smoothly,” he elaborates.
The country’s geography, he adds, can also be a hindrance as the people who need assistance are often deep in remote areas.
Disorganisation is another thing. “It’s easier to work with communities that are internally organised, but these are limited,” Joffres says.
“When you have one player that tries to do too many things along the value chain, instead of having a few to help you along the line, your risk increases. This is especially so if you are a start-up.”
In addition, he notes that there are talent acquisition issues in the sector, but insists that “just because you work for a social enterprise doesn’t mean you don’t get paid as well (as other companies)”. Some social enterprises do pay competitively, he says.
Nonetheless, he adds that “people love the fact they are working for social missions” in social enterprises.
“For the most part, it isn’t easy to get talent in any sector. We have a really passionate team and they get to pursue causes they’re interested in,” he says.
Joffres thinks that interest in the sector is growing among the youth and urbanites.
“If you have a strong social dimension you have an edge over companies that don’t,” he says.
“For instance, people don’t buy Body Shop products only because they’re good products, but also because of the social impact (they have). People who have spending power care about this stuff.”
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The rise of social enterprises
Creating an impact
SEA says some local enterprises are ready for investors

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Private equity fund in £8.5m aerospace deal

CARDIFF-BASED private equity fund WestBridge Fund Managers (WestBridge Capital) had made its biggest investment to date in backing a £8.5m management buy-out.
The deal has enable a management team to acquire Devon-based Aero Stanrew – one of the UK’s leading designers and manufacturers of specialist electronic components for the global aerospace industry
WestBridge, which was established in 2008, has provided £4.2m in equity finance.

Aero said it will use the growth finance to exploit emerging overseas markets to increase sales and profits at the company following a management buyout.
With a workforce of 172 the £11m turnover business supplies complex electromagnetic modules and electronic systems to blue chip customers including Rolls Royce, GE Aviation, Goodrich and Thales.
As well as its headquarters in Barnstaple it has a manufacturing site in Tunisia.
Clive Scott and his team – Chris Evans, Owen Rolfe and Peter Vaughan – led the buyout after being with the company for a combined total of 40 years
Mr Scott said: “Although Aero Stanrew is already in a very strong position with a strong order book and recession-resistant business model, this deal provides us with the opportunity to pursue ambitious plans for further growth.
“We are particularly pleased to have backing from WestBridge because the team there already has a proven track record in our sector and have a refreshing approach to investment.
“They have a network of industrial investors who deliver practical, hands-on advice and guidance that is borne out of experience. It’s truly an added-value service that provides much more than just money.”
A member of WestBridge Capital’s co-investment club, Phil Crawford-Smith, has been appointed independent chairman of Aero Stanrew.
He said: “I’m delighted to have been invited to take up this role. Clive and the team are strong operators who’ve built an exceptionally well positioned business.
“I’m looking forward to working with them to develop Aero Stanrew even further over the next few years and take full advantage of the comprehensive market opportunities available to the company.”
Guy Davies, chief executive of WestBridge, said: “We are pleased to support the entrepreneurial vision of Clive and his management team by providing funding that enables them to pursue ambitious and realistic plans for continued growth.
“This is a very robust business and its value will be considerably enhanced as the team builds on its strategic approach to business development. The directors have strong knowledge and experience of the sector. Working closely with them, we have already identified and agreed a number of key strategies for growing the business over the next few years.
“Emerging markets, particularly in the Far East, are expected to drive future growth in the global civil aerospace market and we fully intend to exploit all the opportunities this presents.”
Mr Davies added: “Aero Stanrew will also extend its product range, enter new markets and the team will continue adopting a proactive approach to marketing and new business development. In fact, we’ve already got a number of exciting opportunities in our sights.
“Add to this, the fact that conservative estimates predict the production of 26,000 new passenger aircraft by 2029, and we see a very bright future indeed.”
WestBridge is in the process of raising finance for up to a £50m SME fund. Fundraising will close next month. At first close it had secured more than £10m in backing. WestBridge has an investment range of between £1m to £5m in high-growth potential SMEs.
Guy Davies, chief executive of WestBridge Capitalhttp://tourism9.com/    http://vkins.com/

Analysis: China developers launch funds to bridge finance gap

BEIJING (Reuters) – China’s fledgling real estate investment fund market could see a surge of activity in 2012 as property developers launch their own vehicles in a desperate bid to bridge an estimated $111 billion financing gap in the year ahead.
A government-led clampdown on bank, bond, equity and trust market financing for real estate has left developers with little choice other than to set up their own funds, which have raised barely 10 percent of the sum in the past two years that needs to be found to refinance maturing debt in 2012.
On the upside, China‘s high net-wealth families still favor property investment and funds give them an alternative to buying the physical asset while retaining exposure to the sector.
“Of course, it will take time, but in the next decade, you will see the Chinese property market become more institutionalized,” Frank Marriott, Savills’ senior director of real estate capital markets for the Asia-Pacific, told Reuters.
Time is not on the developers’ side. Slowing sales and falling prices are hitting just as refinancing pressures are soaring. Analysts widely expect industry consolidation to accelerate in 2012 and some players, even big ones, will have to sell assets and quit the market.
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Reuters China Property Watch http://r.reuters.com/deh85s
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About $2.2 billion of syndicated property loans and club deals will become due this year, according to Thomson Reuters data, while a further 117 billion yuan ($18.6 billion) needs to be found to repay maturing real estate trusts.
Add in the other credit lines that need repaying and developers need to find over 700 billion yuan this year, according to Hua Xia Times, a Chinese business newspaper in Beijing.
Major developers such as China Overseas Land & Investment , Gemdale Corp and Forte, are among the first firms to have launched their own funds.
Others including China Vanke , the country’s biggest listed property firm by sales, chose to set up funds jointly with their peers to help each other survive tough times.
And more will follow.
“We must make more friends and widen our financing sources. That will help our future growth,” Zhu Tong, chairman of Sun Real Estate, a mid-sized developer in Beijing, told an industry forum in Beijing last week.
A total of 29 property funds raised $4.1 billion in 2011, a big improvement on the $2.9 billion raised by 28 vehicles in 2010, according to consultancy Zero2IPO.
Industry analysts expect more than $6 billion will be raised in 2012 and that the property fund market will expand at an annual rate of 40-50 percent over the next few years.
The funds target wealthy entrepreneurs, with an investment threshold of 10 million yuan and above and are expected to offer annual returns of at least 25 percent, said Fu Zhe, a Zero2IPO analyst in Beijing.
“Private investors still have a strong interest in the property sector as there are really not many other options for them,” Su Xin, chairman of Go-high Investment, which invests in commercial real estate, told an industry forum last week.
His company’s recent survey in Wenzhou, Ordos and some coal-rich cities in northwestern Shaanxi province — places with some of the biggest speculative property bubbles in the last decade — shows that investment interest in property remains robust.
FUNDING CONSTRAINTS
That’s lucky for Chinese developers given the funding constraints in the wake of government pledges to pull home prices back to a reasonable level after a decade of rocketing real estate inflation that saw prices surge 10-fold in 10 years in key cities across China.
Not only have the major state-backed banks been told to cut credit lines, the government has also halted all financial innovations to channel money into its targeted property sector. These include non-public trust funds launched by Chinese trust firms in private placements to channel funds to the sector and the long-awaited exchange-traded real estate investment trusts (REITs).
But it’s going to take more than luck for developers to survive the financing drought.
Banks have prolonged mortgage loan approvals, forcing developers into a hand-to-mouth existence of surviving on downpayments and then seeing the bulk of the cash from sales going directly to the accounts of contractors and suppliers.
“That means even after you’ve sold residential units at a cheaper price, the cash in your hand still does not increase,” Ren Zhiqiang, the outspoken chairman of Huayuan Property , told a forum last week.
As a result, the balance sheets of many Chinese developers deteriorated in 2011. Greentown China , a major player in eastern China, is now struggling to survive and having to sell assets to do so.
Developers are compelled to dig deep into internal reserves for working capital. Internal funding, including new property funds raised, was 41 percent of total financing in the industry in the first 11 months of 2011, up from 38 percent and 33 percent in the same period of 2010 and 2009 respectively, according to the National Bureau of Statistics.
New loans to the property sector accounted for only 17.5 percent of banks’ total new local-currency lending in the first three quarters of 2011, down from 31.1 percent in the year 2007, according to data from the People’s Bank of China.
With Beijing showing no mercy in cracking down on property speculation, developers like Greentown China that expanded rapidly in the past few years and have the high gearings to prove it, will have to sell land and half-built projects to repay debt.
That is why the real estate fund route is considered to have so much potential. It helps developers keep control of their assets and gain control of their finances.
Cao Shaoshan, chairman of Orizon Capital, is excited about the outlook of Chinese property funds.
He believes China’s maturing real estate market means developers will specialize more on construction while outsourcing fundraising. But it won’t happen fast enough for many struggling developers.
“The Chinese property fund sector is still at an infancy stage,” Cao said. “It’s unable to change the financing landscape a lot in the short term.”
(Reporting by Langi Chiang and Nick Edwards; Editing by Matt Driskill)
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Financial services sector sheds 20,000 jobs in six months, claims CBI and PricewaterhouseCoopers

Britain’s financial services sector will have shed 20,000 jobs in six months by the end of the first quarter, according to the CBI and PricewaterhouseCoopers.
The latest quarterly CBI/PwC report on the sector estimates 11,000 jobs will be lost in the first three months of the year, following 9,000 job losses in the fourth quarter of 2011.
It would take the total number of UK financial services job cuts to 101,000 since the collapse of Lehman Brothers in the fourth quarter of 2008, within a sector that employs 1.05m people.
According to the report, employment in banking fell at the fastest rate in the three months to December, and Kevin Burrowes, UK Financial Services Leader at PwC, said further job losses “seem inevitable” as banks tried to cut costs.
Overall optimism in the sector was lower than three months ago, falling to -24pc compared with -20pc in September, as the eurozone debt crisis weighed down on sentiment.
“Firms are less optimistic, employment is down and investment intentions for next year are weaker, as concerns about the global recovery and ongoing troubles in the eurozone create uncertainty,” said Ian McCafferty, the CBI’s chief economic adviser.
Competition and level of demand were considered the two factors most likely to constrain business expansion in the coming year.
Mr Burrowes said UK banks were growing increasingly concerned about prospects for non-performing loans, anticipating a rise in the number of people falling into arrears on their mortgages and credit cards.
“Eurozone turmoil, uncertainty in the global economy, UK austerity, weak household incomes, increased competition, significant regulatory changes, and reducing headcount, not to mention the fight for funding, all point to a challenging year for bank management,” Mr Burrowes said.
He said banks were had “woken up” to increasing competition on the high street, and were also preparing to spend more time and money on matters related to regulatory changes.
Mr Burrowes said the availability of credit was a big issue for banks and would increasingly “cloud the sector” over the next six months.
Despite the downbeat outlook for employment and increasing pessimism, the volume of business in the financial sector grew at the fastest pace over the period since June 2007, before the onset of the credit crisis. Of the 106 companies surveyed, 53pc saw volumes rise over the past three months while 24pc reported a fall, giving a balance of +29pc, compared with +10pc in September.
A balance of +19pc expected business volumes to rise again over the next three months, and the level of business was considered “normal” for the first time since September 2007, when the scale of Northern Rock’s problems came to light

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