How Funds Work

In general, the funds are organized by experienced sponsors of previous investment vehicles who raise the funds’ equity capital through private placement of equity interests with sophisticated institutional, corporate, and other qualified investors. Funds are typically managed by an affiliate of the sponsor(s) with a proven track record in direct equity investments, portfolio management, and relevant regional or sectoral experience. The fund manager is expected to add value to the portfolio investments by providing management expertise, improved marketing, and access to international manufacturing technologies, and to implement a coherent strategy for the eventual liquidation of investments. The fund manager typically becomes a voting member of the board of directors or other governing body of any company in which a fund invests.

OPIC-supported funds typically are organized and structured like other private equity investment vehicles, i.e., as limited partnerships or limited liability companies. OPIC supplements private equity capital by lending long-term debt (typically with a 10 to 12 year maturity) to a fund. OPIC's new program standard generally limits the amount of debt to one-third of the private equity capital invested in the fund. OPIC receives commercially-based fees and a small profit participation component as compensation for the financing provided to the fund, and the program is structured to ensure that fees and profit participation will fully cover costs and a modest return. In addition, OPIC’s terms allow the fund manager to make distributions pro rata along with the equity investors subject to certain covenants being met.

Typically, OPIC financing will be provided to the fund in the form of a loan in which certificates of participation guaranteed by OPIC (and backed by the full faith and credit of the U. S. Government) are sold to “eligible investors” as defined in OPIC’s governing statute. In general, eligible investors include: U.S. citizens; U.S. corporations, partnerships, or the like which are more than 50% beneficially owned by U.S. citizens; and foreign entities wholly owned by U.S. citizens. OPIC requires either (1) that the fund manager or general partner be eligible investors, or (2) a significant percentage of the limited partner capital of the fund (typically, an amount equal to 25% of the OPIC financing) be provided by eligible investors. OPIC does not offer any guaranty of the fund’s equity, and all equity investments in OPIC-supported funds are fully at risk, and subordinate to any OPIC lending.