Blended finance represents $231 billion in capital committed to Sustainable Development.
Blended finance represents $231 billion in capital committed to sustainable development. Public/Private partnerships de-risk investment and bring capital where it is most needed.
That’s a model being championed by Maria de Palacio with GAWA Capital, based in Madrid.
There’s an estimated $4.2 trillion annual funding still needed to realize the SDGs.
We can’t get there if we keep the status quo – working in our own little siloes. SDG 17 – cooperation – is perhaps the most overlooked and possibly the most needed.
Additional reading:
• Some other interesting stats on blended finance thanks to Convergence Blended Finance: https://lnkd.in/gdmuqvkq
• Huruma’s dedicated web: https://lnkd.in/gAghyNJF
• OECD’s case study on Huruma Fund: https://lnkd.in/gEvZDH_C
• Impact Investing Institute case study on Kuali Fund: https://lnkd.in/gVNy7rgw
Podcast Transcript
Jacob: [00:00:00] I’m here with Maria de Palacio with GAWA Capital, please introduce yourself.
Maria de Palacio: Hello, good afternoon. I’m Maria Palacia. I’m a CFO and COO at GAWA Capital, an Impact Investing Management company in Spain.
Jacob: Tell me about that moment in your career when you realized you wanted to shift things toward making an impact.
Maria de Palacio: Sure, I started my career in consultancy, but I’ve always been very interested in international relations and contributing to the world in general. I think I had a public service vocation and that’s why I also spent a long time in the CNNV, which is the Spanish regulator, but throughout that time, I realized that I wanted to get a bit further. I learned from GAWA Capital and Impact Investing through different events and conferences where I. got to to see Agustine, which is one of my co-COOs and well in 2019, I got a call from them and I was really interested in the project and [00:01:00] when I got to know them personally it was a no-brainer.
It is a very beautiful project with an amazing team. changing from investor protection to impact investing was quite a big change for me and I realized that that was where I wanted to be.
Jacob: Tell me about the good you’re trying to make in the world with GAWA Capital.
Maria de Palacio: Well, GAWA Capital we’re focused apart from investing through impact, we’re also very keen on liaising with private and public Institutions in order to guarantee that the private capital reaches the impact investing and through a blended finance and our alliances and our partners.
In the public and private sector, we’ve been able to reach the most vulnerable communities in Latin America mainly, but also in Asia and Africa. And this would have never been possible without public investors and the catalytic capital, which helps attract all the private capital.
[00:02:00] And on the other side we’re focused on transformation through technical assistance. We have a technical assistance fund from the European Commission, and we’re responsible for managing those funds and reaching the final beneficiaries, and involving the investors in certain projects also in risk management projects for the companies developing different products in order for them to access the smallholder farmers that would not have access to finance.
We also develop other projects for agriculture in order to implement certain projects in terms of climate resilience and adaptation.
Jacob: So for someone who hasn’t heard of technical assistance before, can you explain what that is and why doesn’t everybody do that? How is that a differentiator for you?
Maria de Palacio: To make it simple, what an impact investing firm usually does is just invest in an entity in order to get impact, measure that impact, and also get some return.
In our case, technical [00:03:00] assistance funds are in addition to the investment so it’s a different source of funds and they are not returned. So those funds are dedicated to these projects in order to develop the objectives that we have from an impact perspective. So it’s quite a big deal there and a change versus normal and standard impact investing.
Jacob: Can you give me an example of, how GAWA Capital was making an impact,
Maria de Palacio: Yeah. I could talk about many examples right now. We’re very happy with the project that we’re launching from our TA team, which is dedicated to climate adaptation.
We have to choose all the implementing partners and consultants that will help that entity develop certain projects. For example in order to provide products and also to develop the project for the final beneficiaries, the smallholder farmers might need, for example, solar pump projects that have to be financed.
For example, [00:04:00] a hydro gel that they’re developing in order for those smallholder farmers to include them in their farms. So that it’s used as a retainer of water and nutrients. So in case there’s not enough rain in the area, they can really manage their adaptation to changes in climate.
It’s quite an interesting project because we’re not only helping the company from an organizational perspective but also helping them develop these kinds of projects that will help the smallerholder farmers adapt to climate change.
Jacob: Where does GAWA capital fit in sort of the ecosystem in Spain? It sounds like you’re one of the first, one of the largest. What’s your take on the market in Spain for impact investing?
Maria de Palacio: GAWA Capital is one of the main impact investing firms in Spain and one of the few that invests outside of Spain, well and outside of Europe too. We’re focused on developing countries and that is not usual, [00:05:00] and on the other side, we’re really involved in the SpainNAB. For example, Agustin is part of SpainNAB, which is the Spanish representative of the GSG, in Spain, and we’re also part of, different initiatives associations, and communities and impact investing in Spain in order to encourage investors to reach that impact investing sector. It’s true that in terms of the size and size of funds in the impact investing ecosystem in Spain, we’re one of the biggest alternative investment funds. We currently have a 120 million fund taking into account the private investors and also the Spanish development agency, with the help of Cofides and the European Commission. Not many other funds have this kind of public investors.
And furthermore, we’re launching a new fund, which is the Kuali Fund, where we will have the Green Climate Fund investing in the fund. And that is also quite a big deal because it’s [00:06:00] differentiates GAWA from other funds in the ecosystem and the Green Climate Fund doesn’t usually invest in private funds. They will be investing 25 million first loss tranche together with the European Commission which will also be investing another 12 million first loss tranche. It’s quite a specific partnership, which is not very common.
Jacob: What does an ideal customer for GAWA Capital or an ideal investor look like for you?
Maria de Palacio: Well it has evolved. I must say that our investors when we launched our first fund, mainly it was religious institutions that invested in this kind of fund because we were investing mainly in Latin America and they’re very present in those areas and geographies. But, as we launched Huruma, which was quite a bigger fund, we got institutional investors, insurance companies, and also the first investments of the public investors I mentioned through the European Commission’s first loss tranche, Cofides [00:07:00] and the Spanish development agency. These are, the main investors, but we also have some private investors, through different wealth managers
Jacob: If I was a potential investor, why would I choose GAWA over other options? ,
Maria de Palacio: I think that the main reason why you would choose GAWA and our funds is we’re addressing our investments. We’re reaching the most vulnerable communities in the world and through the investments mainly in microfinance institutions, we provide access to finance to a population that didn’t have any access to that before.
We’re, associated more to the SDG one, which is ending poverty, and I guess that that is the main reason why you would decide to invest in GAWA Capital rather than another fund. But it’s also for other investors that might not have such a high-risk profile and find that this blended finance structure provides them with some security and the first lost tranches would provide [00:08:00] them assurance. in this kind of investment.
Jacob: How would you describe the business model for GAWA, do you have anything unique with your compensation model? Tell me about how that’s set up.
Maria de Palacio: In terms of fees we’ve got some management fees as any other fund, but we do have the carried interests totally related to the impact that we’re generating. There’s a direct relationship between what we say and what we receive because our main focus is on impact. Our return, in terms of carried interest, is completely subject to the impact.
Jacob: In this case, if you don’t make the impact you say you will, What do you do with your carried interest? How does that work?
Maria de Palacio: There’s a specific calculation for example, in the case of. our current fund, there’s a hurdle rate in which the current interest won’t be applicable until that hurdle rate is reached. Once that hurdle rate is reached, there’s a calculation from one side in terms of financial return and on the other side, in terms of the impact [00:09:00] scoring of the portfolio. So until the end of the fund, this calculation of the carried interest won’t be final, and this is quite important for us and it’s associated with the objectives of the management and the whole team.
Jacob: So it’s a way to show that you. actually put your money where your mouth is, you care about the impact you’re making.
Maria de Palacio: Exactly.
Jacob: What are you most looking for right now?
Maria de Palacio: Currently what we’re really looking forward to is encouraging all the private investments through blended finance structures. And we believe that is the way we would really make a change because it’s the way that we can really get impact investment to thrive.
That is the reason why we partnered not only with the European Commission, but also with the GCF, which is a UN fund, and they will be another part of the first loss and that is quite an important step for us because we will have different public players that will guarantee the access of the private investors, to these [00:10:00] funds. We will get another TA facility for this new fund, which will be bigger than the previous one and we’re really dedicated to encouraging this kind of project also in the ecosystem. Because we believe systemic changes are really important and it’s meant to reach long-term impact.
If you only invest and get a certain measurement of the impact, you’re not there for the long run. So I believe that’s one of the main aspects on which we’re focusing right now.
Jacob: If someone is interested in learning more about one of your funds or about GAWA Capital, what’s the best way for them to find you?
Maria de Palacio: They could find us obviously on our web page, but we’ve also got a specific web page for Huruma and we’ll be developing a specific one for Kuali, which is in the process of fundraising right now.
I would also encourage them if they want to search in Google that there’s, OECD, development case study on Huruma, which is quite interesting. And there’s another one on the Impact Investing Institute [00:11:00] focused on, Kuali. I believe this is a very, very interesting reading for anyone who wants to know anything more about our funds.
Jacob: Anything else you want to share before I let you go?
Maria de Palacio: I think as a conclusion to what we’ve been discussing, both on the blended finance importance and the technical assistance, I think that we’re strong believers of SDG 17. Although it’s the last one, I think that alliances are really important in the ecosystem in order for impact investing to thrive.
I would be really willing to get in contact with other players in the ecosystem, not only in Spain, but also internationally, because I think learning from each other is crucial and this kind of podcast are really good to get to that goal.
Jacob: One of my soapboxes is just that there are so many of us trying to tackle some of the world’s biggest challenges, but we are trying to do it all by ourselves on our own little island. And we really need to share best practices, help each other out, and be more collaborative if we’re going to reach the SDGs. We do need this [00:12:00] ecosystem. We do need collaboration because it is all for creating a better future for everyone.
Maria de Palacio: Yeah, I think that is super important. I have a feeling that it is very important to get the different players in the ecosystem as well to collaborate because you have a lot of areas where you have Small entrepreneurs, or small businesses that are launching their projects on a social or environmental aspect, but if they were able, if they could be contacted with bigger players I think the synergies that we would get there would be huge.
In fact, I’m really moved by a project that is done by a foundation in Spain called Unlimited. One of the projects that they launched aims at getting all the entrepreneurs on the healthcare projects with Lili, which is a very big company in the sector and they get together to discuss and learn from each other and, I think that is a super huge idea. I believe that’s what should be done worldwide.
Jacob: Thank you so much for sharing your insights and [00:13:00] perspective and excited to see you continue to push forward with the good that you’re doing. Keep up the good work,
Maria de Palacio: Thank you very much. It was a pleasure talking to you. I hope to see you soon.
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