CDC, founded 56 years ago, operates under the aegis of the British governments’ foreign secretary and has a mandate of investing in the private sector of the world’s poorest countries, principally in Africa and Asia.
Formerly known as the Commonwealth Development Corp., CDC manages $1.8 billion in assets. The British government has no role in the day-to-day operations of CDC, beyond requiring that the organization must seek to improve the economies and lives of people in the countries where it invests while adhering “to the highest standards of corporate governance.” But don’t think of CDC as the equivalent of foreign aid to developing economies. It invests the money of the British government (and thus indirectly the funds of U.K. taxpayers), so it must invest not just to do good, but also to make a profit.
CDC reorganized into two groups in 2003. One part continues to be called CDC and has the role of a traditional LP. It invests in fund managers instead of investing directly and is a relatively small organization of two investment professionals and 20 staff working from London.
The second part includes two investment firms spun out of CDC during the reorganization: Actis Capital, now 60% owned by its partners (which absorbed the largest portion of CDC’s staff and offices globally and which in Asia invests in the emerging markets of China, Malaysia, and South Asia); and Aureos Capital, a company investing in small to medium-sized companies in emerging markets, including dedicated funds for South Asia, South East Asia and the Pacific.
CDC is doing quite well. “We’ve had no new money from the government, since 1994,” Byworth says. “We’re self funded. We have to build the money that we re-invest. We don’t need to go to the government for a handout to cover losses in our portfolio. We’ve been successful and our GPs have been successful, both in financial terms and in terms of building businesses operating with strong corporate governance and ethics.”
For 2003 (data was unavailable for 2004), CDC had a positive return of GBP195 million from prior investments or about 11%, well above public equity market returns, according to a public report. CDC’s new investments in 2003 included a horticultural business in Kenya, a public manufacturing company in India and two power-generating businesses in Bangladesh. CDC had exits from investments from a Ghanaian bank, a Tanzanian gold mining company, a Ugandan financial group, a Tanzanian gas project and a Philippine power business.
As it moves forward, CDC’s direct investing has come to an end, shifting to its fund managers. But its exits are on the increase, with six exits in India alone last year. For 2004, “our return numbers are even better than 2003’s returns,” Byworth says. “But you really need to look at us over a 10-year time frame-the lifecycle of our existing and new fund commitments-for a real measure of our commercial and developmental success.”
CDC’s biggest challenge historically and going forward is whether it can use its assets to improve the lives and economies of the emerging markets in which it participates and still make a profit. That is made all the more difficult by the political entanglements and corruption that are rampant in the markets in which it invests.