A fund is an investment-pooling vehicle with a fund manager who invests in different products chosen for the fund to target.

A fund of funds is a fund that invests in other funds—which, in turn, invest in underlying products.

There are three phases to the lifetime of a fund of funds:

·         Fundraising, which takes 12 to 18 months

·         The investment period, where the fund makes new investments over the course of about five years

·         The divestment period, during which the fund exits its investments, takes its profits and returns the money to its investors.

So A Dictionary of Finance got three experts on funds of funds from the European Investment Bank to come on the podcast and explain all this and more:

·         Cyrille Arnould heads the Global Energy Efficiency and Renewable Energy Fund (aka GEEREF), a EUR 222 million fund of funds which invests in funds that create green energy in developing countries. He also tells us about playing horseshoes with the US president.

·         Mónica Arévalo Calsina is senior investment manager for GEEREF. She once swam with sharks in the Caribbean, but is now happy to report that financial sharks do not abound in the development finance world, as investors have what she calls “a triple bottom line objective of people-planet-profit.” Meaning that they are as focused on positive impact as they are on delivering returns.

·         Enrico Canu, head of the Bank’s equity unit, is just back from a visit to an EIB-supported company that makes jewelry from bones in a Nairobi slum.

 

Listen to the podcast to find out:

·         What it means to subscribe to a fund. (It’s harder than subscribing to this podcast on iTunes, Spotify, or  YouTube. You should definitely subscribe to A Dictionary of Finance right now, but we can’t recommend whether you should subscribe to a fund of funds. Cyrille points out that it’s not for everyone.)

·         What you’re committing to do when you subscribe to a fund of funds. Turns out, you don’t give the fund manager your money right away. “But when the manager calls for your money to finance an investment, you have to send the money within a few business days,” says Cyrille. “Or the consequences are dire.” That’s no fun.

·         Why diversification is an advantage of funds of funds. “They allow you to invest in a portfolio of underlying funds,” says Enrico. “These funds then invest in a portfolio of underlying companies.”

·         What’s a limited partnership? Mónica explains that this is an agreement to commit a specific amount of capital to a fund—and no more than that amount. That’s the “limited” part of the limited partnership.

Cyrille tells us how GEEREF contributes to development in Africa and elsewhere, and gives us a glimpse into the next version of GEEREF, which will be bigger and even better. Guess what he’s calling it?

GEEREF NeXt.

Listen to the podcast and you’ll hear how impressed we were by the upper case X in NeXt.

Meanwhile, others are already impressed by GEEREF NeXt. The Green Climate Fund, which was set up by 194 countries under the UN Framework Convention on Climate Change, approved GEEREF NeXt as one of its favoured projects last year. The Green Climate Fund committed USD 250 million to GEEREF NeXt, along with USD 15 million to be used as technical assistance to its most complex projects.

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Let us know what you think or what you’d like to hear more about on the podcast. You’ll find us on Twitter at @EIBMatt or @AllarTankler.