Investment process
Introduction
Investing in developing countries is associated with major risks, particularly financial risks. We seek to manage these risks through a comprehensive investment process.
Our investment process follows the same phases regardless of sector, instrument or whether the investment is made directly or indirectly.
The investment organisation, working alongside experts in ESG, law, business integrity and impact, conduct a thorough analysis of the investments we select that are consistent with our investment strategy.
The analysis is then reviewed by Swedfund’s Investment Committee and approved or rejected in a final step by the Board of Directors, or directly by the Investment Committee if it falls within the investment mandate granted by the Board. Each investment is considered to have the prerequisites to achieve the goals set in our three pillars: impact on society, sustainability and financial viability.
Below is a brief description of the different steps in our investment process. For more in-depth information, please read our Integrated Report
The initial assessment examines whether the proposal is consistent with our investment strategy and criteria, and how the investment can contribute to Swedfund’s mission objectives and the Sustainable Development Goals. We carry out an overall evaluation of the country, the company and its business plan and strategic partners, and our potential role. In every investment, our role must be additional.
The investment team draws up a proposed decision, “concept clearance”, which is then presented to Swedfund’s Investment Committee. Together with the investment team, key opportunities and the greatest risks associated with the investment which must be analysed during the due diligence process are identified and discussed.
During the due diligence phase, a thorough analysis of the company is initiated. The investment team meets representatives of different areas of the company to gain a deeper understanding of the company, its processes and routines, and the documents that have been shared with us. The DD process forms the basis for decision-making, including the required and contractual ESG Action Plan (ESGAP), which describes the changes that the company needs to make in order to live up to our sustainability requirements.
At the screening meeting the Investment Committee will decide whether the investment meets our requirements and whether it should be presented to the Board of Directors. It is not uncommon for new questions to be raised, which the team then examines in the final stage of the due diligence process.
After passing the screening process, the proposal is presented to the Board, which will then make a decision. If the investment is approved, an agreement will be negotiated. The investment agreement also includes requirements regarding sustainability and reporting.
Once the agreement has been signed and the money disbursed, the work initiated earlier during the investment phase continues. Investment managers are responsible for following up and ensuring that the companies comply with the contracted conditions, relevant parts of our policies and ESGAP. To help companies attain the goals set up, we can allocate funds in the form of technical assistance, which can for example be used for training or consultancy.
There can be several underlying causes as to why a portfolio company does not perform as planned, such as poor market development, war and conflict or other aspects related to a company’s governance. To support the portfolio companies in such situations, we have the Special Operations function (SO). A decision to move an investment from the investment organisation to SO is made by the Investment Committee, then we can spend extra time or use other methods than usual to help reverse the development.
The exit phase generally starts when we consider the goals established for the investment to be achieved or when we cease to be ’additional’. We exit either by selling our shares, the loan being repaid or conclusion of the fund. An exit report is prepared, where we analyse the achieved results, and what relevant knowledge and experiences we have achieved. The report also describes how the investment has lived up to our requirements and contributed to the objectives adopted at the time of the investment.