DBJ selects three fund managers as venture capital market evolves
Published:Wednesday | February 17, 2016 | 12:00 AMSteven Jackson
The Development Bank of Jamaica (DBJ) has selected three fund managers as part of the push to develop infrastructure for equity financing and venture capital.
The companies are Eppley Limited, a member of the Musson Group; GK Investments, a subsidiary of GraceKennedy; and Portland Equity, an entity ultimately controlled by Michael Lee-Chin.
These companies were confirmed by DBJ Managing Director Milverton Reynolds and project coordinator for the Jamaica Venture Capital Programme, Audrey Richards, immediately following a Gleaner Editors' Forum on Wednesday. They also noted that a fourth fund manager is under review for approval.
Eppley is expected to enter a new arena for Jamaica mezzanine financing.
DBJ has taken a position in Portland's Caribbean Equity Fund II, which Richards and Reynolds said Wednesday was transacted under the venture capital programme.
The three fund managers are expected to target a minimum of US$20 million ($2.4 billion) for buying equity positions in businesses.
"You are expecting for the fund manager to invest for the first five years of the fund and then really start to realise the returns, help to grow the businesses and then be able to exit and give back returns in 10 years," said Richards during the forum.
DBJ made a call for proposals for venture capital and private equity fund managers interested in investing in Jamaican businesses during the period June to September 2014. Eight proposals were received four from local managers and four from overseas according to the DBJ.
DBJ started the process of developing a venture capital market in 2013 with donor technical support from the Inter-American Development Bank.
"The entrepreneurial ecosystem is important because without a deal flow of investment-ready companies then we can have fund managers coming in with wonderful proposals of a fund raising US$20 million or US$50 million to invest in companies in Jamaica, those companies do not exist or they are not ready," said Richards, who then defined the scope of venture capital to include start-ups and existing companies in need of equity for expansion.
"Venture capital is usually referenced when you talk about early-stage going up to growth-stage companies companies that may have been in business for a while but need the growth equity for expansion," she said.
Winners and losers
The nature of the market means that fund managers are likely to operate a portfolio of winners and losers, and more so the latter. The strategy is that the earnings from the profitable investments will compensate for loss-making or flat investments.
You just need to develop one winning company like a Google or a Jamaica Money Market Brokers (JMMB), reasoned Steven Whittingham, managing director at GK Capital Management Limited, at the forum.
"It is not bulletproof ... investments do not only go up. I think we have to spend some time to educate the institutional investment community," Whittingham added.
Previous reports stated that the fund managers approved by DBJ will seek out financial backing from some of the 11 corporate investors which made up a select panel that includes ATL Pension Fund, GK Capital Management, Capital Options, ICD Group, JMMB Group, Jamaica Producers Group, JN Fund Managers, Musson Group, NCB Capital Markets, Pan-Jamaican Investment Trust, and Sagicor Group Jamaica.
Joseph Matalon, chairman of the DBJ and also chairman of the ICD Group, indicated that the fund managers would receive a set fee and profit share above a set floor.
That fee is "one to two per cent, plus a carried interest where the fund manager gets a share of the profits that are made in the fund. That can vary from 10 to 25 per cent as a carried interest," said Matalon. "But those fees are paid to the fund manager if, in fact, there is a return to the fund. Plus, there is a floor above which the carried interest comes into play," he said.
The DBJ's medium-term strategy involves facilitating access to credit and access to equity via the Jamaica Venture Capital Programme.
In February 2013, the DBJ signed a non-refundable technical cooperation agreement with the IDB's Multilateral Investment Fund for the venture capital project.
The major imperatives of the push involves developing a legal, tax and regulatory structures for venture capital as well as training of local investors, fund managers and entrepreneurs; fostering new venture capital and private equity funds through public- and private-sector collaboration; fostering the development of a sustainable deal-flow of investment-ready businesses; and building strong linkages with international development partners, the Jamaican diaspora as well as the Caribbean and Latin America.