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Stellar return on 3rd World loans
DON MacDONALD
Freelance
June 11, 2004
David Creighton has had a busy week of meetings with top financial
officials from around the world.
Creighton met with key executives from the World Bank, the African
Development Bank, the Asian Development Bank and the European Bank
for Reconstruction and Development. He even had a chat with Bulgaria's
finance minister.
All these officials were in town for the Conference de Montreal
economic forum. They wanted to see Creighton because he's the chief
executive officer of a unique Montreal investment firm called International
Finance Participation Trust Management Inc.
IFPT participates in private-sector loans in emerging markets that
are issued by seven international financial institutions, including
the development banks.
In January 2002, IFPT launched its first fund after raising $360
million U.S. from Canadian pension funds. So far, it has participated
in 37 private-sector loans in 23 countries in 21 different sectors.
Its portfolio includes projects as diverse as a pig farm in China,
a steel mill in Russia and a tire factory in India.
"We have a team in place here that we've brought from around
the world," Creighton said in an interview. "We represent
a new form of financing for these institutions ... and it's something
that no one else in the world is doing."
Now, IFPT is gathering money from Canadian and European investors
for a second fund that will raise up to $500 million U.S.
Institutional investors find IFPT's offering appealing for a number
of reasons, not the least of which is the risk-return profile of the
investment.
Creighton said the default rate on loans of international financial
institutions has historically been just 0.58 per cent - that's the
equivalent of investment-grade corporate debt.
IFPT benefits from the preferred-creditor status of these institutions.
Preferred status means the host country gives priority to repaying
the loan by, for example, granting borrowers preferred access to foreign
currency in times of crisis.
Despite the low default rate, the IFPT portfolio has generated a
return of 3.8 per cent over the LIBOR floating U.S. interest rate.
That's more than three percentage points above what investors would
expect from a corporate debt security of equivalent risk, Creighton
said.
It's enough to warm the heart of even the most dour money manager,
especially because the portfolio has not experienced a default or
a writeoff.
IFPT's portfolio also has a low correlation to stock market and
bond indices offering additional diversification to portfolios. It
produces an absolute return, meaning it generates a constant spread
over floating U.S. interest rates.
Creighton also noted pension funds are looking for safe emerging-markets
vehicles to tap into the superior growth that these economies are
expected to show in coming decades.
IFPT now has a staff of 15 in Montreal that analyzes projects, sifting
through $4 billion U.S. in private-sector loans issued annually by
the international financial institutions.
Those loans have already been screened by the staff of the institutions
themselves, not only for creditworthiness, but for their contribution
to development goals as well as environmental and social responsibility.
The trust was the idea of veteran Montreal money-manager Carl Otto
who, among other previous achievements, was a founder of money-management
firm AMI Partners.
Now IFPT chairperson, Otto set up the trust in the summer of 1999
with Creighton, a Montrealer who came over from the London office
of BMO Nesbitt Burns, where he managed the international fixed-income
desk.
In a separate project, IFPT and its partner Actis recently beat
out 60 other firms to manage the new $200-million Canada Investment
Fund for Africa. The two fund managers will invest in risk capital
for private investments across the Africa.
You may be asking yourself how you can get a piece of IFPT's emerging-market
loan portfolio.
Currently, you can't, because the minimum investment is $10 million.
But Creighton says the firm is thinking about creating a separate
fund for retail investors in the future.
dvm1@sympatico.ca
© The Gazette (Montreal) 2004
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