David Stevens

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TBLI CONFERENCE™ EUROPE 2012 - Zurich - Switzerland

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David Stevens

  1. 1. TBL2: Maximizing TBL Investment ImpactTBLI Europe Conference – November 2012
  2. 2. TBL2: Triple Bottom Line Leveraged for Impact• Whether a local coffee shop or a global bank, TBL businesses are critical to creating a more sustainable world• We believe TBL principles can be prudently leveraged to catalyze huge positive impacts—we call this TBL2• We seek to geometrically increase TBL impacts by unlocking the huge potential of local currency financing for emerging nations• Over $5 Trillion USD is available for development finance in emerging nation local savings pools (pension funds and other financial institution investment funds); most is under-invested; little is being used to finance physical, economic or social infrastructure• Unlocking this potential has important implications for the ability of developing nations to self-finance – particularly significant now when many developed nations are facing fiscal crises and foreign currency flows into emerging nations are at risk 2
  3. 3. Virtuous Circle of Long-term Savings • Pools of long-term savings – from Investment pension funds, insurance companies, banks and mutual funds - can play a critical role in national development • Pension fund assets in OECD countries alone amount to over US$19 Trillion1 • These assets are invested in a variety of instruments including: • Fixed Income: Govt. & Pvt. Sector BondsSavings Returns • Equities: Listed Equities, Private Placements • Social • Other: Real Estate, Cash • Env’l • Economic • Investments not only provide returns to savers, but also fund long-term Macroeconomic Stability development of roads, utilities, hospitals, schools, etc. 1 3 Source: OECD. (July 2011) ‘Pension Markets in Focus.’ No. 8
  4. 4. Evolution of the Virtuous Circle in Developing Countries • Developing countries, helped by DFI Investment partners, have catalyzed substantial local savings pools • Pension funds and other institutional investors in developing countries now control US$5 Trillion in assets • This is not restricted to larger countries • For example, Ghana’s pension fund has US$1.6 BN in assets with growth at 20% p.a. • But there’s often no good place to invest the assets productivelySavings Returns • Egypt has over US$75 BN in pension assets • Social but $1BN in annual bond market issuance • Env’l • Regulators, with good reason, want safety • Economic • So the bulk is invested in bank CDs and T-bills • In practice, otherwise prudent Macroeconomic Stability investment regulations often result in high concentrations in low-yield assets with no development impact 4
  5. 5. Finding the Best Investments for These AssetsAvailableSavings Institutional Investors Private Sector Bonds Other GovtInv. Asset Bank T-Bills LocalClass Infra- Equity Real CD’s & Blue Foreign Bonds structure Estate ChipsYield Low Low Mod. Mod. None Variable LowRisk Low Low Low Mod. High High LowDev. Impact Low Low/Mod. Low/Mod. High Low/Mod. Low None WANTED: AAA-Rated Projects: If development finance projects for infrastructure and public services could be structured to reduce risk and receive high credit ratings, these local assets could become a dramatically effective tool for development, while earning safe but 5 higher returns for local savers
  6. 6. One TBL2 Solution: AMF• AMF is a TBL corporation formed to provide AAA (national rating scale) guarantees for local currency bonds and bank loans funding essential physical, social and economic infrastructure in developing countries • Physical: Roads, Airports, Housing, Ports, Renewables, Utilities • Social: Health Care, Education • Economic: MSMEs, Microfinance, Local Bank Financing, Commodity Exports• AMF won first-prize honors in March 2010 at the Marketplace in Innovative Finance, sponsored by the World Bank, the Bill & Melinda Gates Foundation and Agence Française de Développement• AMF is an extension of the experience of prior “monoline” guarantors in the emerging markets–while never a large proportion of their portfolios, emerging nations accounted for US$30 billion in exposure and were the industry’s most profitable line of business, with near-zero losses• AMF expects that two private sector and six public sector investors will be joined by additional private sector parties to launch AMF by early 2013. We came to this conference in search of one or more of those investors! 6
  7. 7. TBL2: Adding Leverage to Move the Needle Annual Financing Catalyzed by AMF 20Principal Insured (US$ BN) The Gates Foundation’s 15 Annual Giving in 20092 10 5 US$ 3 BN 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year• AMF expects to earn investors a handsome 25% return on equity, creating a sustainable business and enabling an impressive developmental impact • Each dollar of capital can catalyze 20 dollars in financing• On an initial estimated capital base of US$350MM, AMF estimates that by 2017 it will catalyze more development financing than the 2009 giving of the Bill and Melinda Gates Foundation 2 7 Source: Foundation Center. (2011). ‘Foundation Growth and Giving Estimates: Current Outlook.’
  8. 8. How and Why AMF Works: An Example• Assume a Kenyan university seeks $25MM to expand its medical school• The university is locally rated AA; $25MM of new debt would make it A-, which the local bond market will not finance due to regulatory impediments• If a 20-yr A- bond could be issued, the additional interest on a bond of such maturity would exceed interest on an equivalent AAA bond by some $12 MM• AMF structures covenants and reserves with environmental and social goals in mind, then uses its local AAA rating to guarantee the $25MM bond issue• Of the $12MM savings, AMF gets $7MM as its bond insurance fee; the university saves $5MM• Kenyan pension funds buy the bonds• The medical school is financed at a low fixed rate; AMF has a profitable transaction with a strong development impact; Kenya has 100% financed its development needs with local funds This example demonstrates the cost savings, debt market access and developmental benefits of financial guarantee insurance. Its basic principles can be applied across all of AMF’s asset classes 8
  9. 9. Mitigating Risk and Maintaining Financial StrengthAs with all enterprises, AMF’s business model is not risk-free. However, much of the riskhas been mitigated, as shown below: • AMF will always be the most senior creditor in the transactions it guarantees • We will strictly adhere to essentiality as our core principle by guaranteeing infra- Underwriting structure and services projects that provide a nation or region an essential benefit • Our exposures will be rigorously diversified by geography, asset class, and issuer • We will never engage in esoteric derivative structures Loss • AMF will reserve 25% of its earnings, which is 3-7x the level of US monolines Mitigation • We will reinsure with our shareholders to manage risk exposure levels • 80-90% of AMF’s liabilities will be a mix of emerging market currencies Foreign • AMF will diversify, diversify, diversify: A mixture of hard currency bonds on the asset Currency Risk side, a mixture of emerging market currency exposures (most of which will be notional Management rather than realized exposures) on the liability side • Credit will be pre-eminent in the culture of the Company Corporate • Risk management will take precedence over revenue production Culture • Compensation will be aligned with long-term risks inherent in business 9
  10. 10. AMF’s Path to Launch• AMF has achieved several critical milestones since its founding, including: • Hiring a multinational/multilingual team of veteran credit professionals with average credit/emerging markets experience of 26/24 years, respectively; • Securing indicative capital commitments from private and public investors, including two private sector companies and six DFIs, for ca. $275 million; • Raising $400,000 from senior management and staff; • Winning a grant from the Bill & Melinda Gates Foundation for $300,000; and • Initiating a rating discussion with S&P and securing an “A+” global scale rating from Global Credit Ratings of Johannesburg, South Africa• AMF is now working with the New York investment banking firm Keefe Bruyette and Woods to recruit an additional private sector investors, a process which we expect will be completed in the coming months• Once investor recruitment is completed, AMF will apply for an indicative A+ rating from S&P. This is estimated to take 2 to 3 months• AMF’s launch will occur shortly after receiving its rating in Q1 2013 10
  11. 11. The Benefits on a TBL2 Investment• An AMF investment will provide investors with returns on all three critical levels while moving the needle in development finance • Economic: AMF projects an IRR of ~25% • Environmental: AMF will adhere to strict environmental policies of the DFIs and directly induce investment in green technologies • Social: AMF will catalyze financing for essential public infrastructure investment with strong social benefits • Impact: AMF will have dramatic, substantial and global impact• In addition, investors will join a unique public-private partnership with a window on the fastest-growing economies around the world• The minimum investment is $5-10MM and of course much larger sizes are also welcome• Interested in learning more? Please come see us at our booth Thank you! 11
  12. 12. ContactDavid StevensFounder and CEOMobile: +1-917-496-9929Email: david.stevens@amfguarantee.comWebsite: www.amfguarantee.com 12

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