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Institutional Investor Profile: Haydee Celaya, Director of the Private Equity and Investment Funds Department, International Finance Corporation
04/04/2007. Source: AltAssets. 
Haydee Celaya on backing new and established managers in developing countries, on which countries and regions are hot in the emerging markets, and on why networks, reference checks and reputation are so very important when investing in riskier opportunities.  With its 179 member countries, International Finance Corporation, the private sector arm of the World Bank Group, is a global organisation that promotes sustainable private sector development in developing countries across the MENA region, Southeast Asia, East Asia, Africa, Eastern Europe, Southern Europe and Latin America. The Washington, DC-headquartered Corporation is both an equity investor and a lender. On the equity side, IFC is primarily a direct investor, with the fund investment side playing a complementary role.
IFC has approximately $22bn in total assets under management, of which about $4bn is dedicated to equity investments. Currently about $1.5bn is committed to third-party managed funds. IFC started investing in equity funds in 1962 and in private equity funds in the late 1980s/early 1990s.
Haydee Celaya has been the director of IFC's funds department since 2004. Prior to that, she was running IFC's Africa department, based in Johannesburg, and before that, she was running the Latin American Capital Markets Group. Celaya started her career in commercial banking.
How has your fund investment strategy developed over the past few years?
'In 2000 IFC decided to consolidate all its fund investments into one group and established the Private Equity and Investment Funds Department. Since that year our team has been restructuring the fund portfolio and putting a new strategy in place. In 2003 the team started re-engaging into new fund investments. When I took over the team in 2004, the boom in private equity had already started. The market has been incredibly busy over the past two to three years and we have seen a lot of business.'
What type of investments do you look for on the fund investment side?
'We are a very selective investor when it comes to fund investments. We make only very targeted investments - either with fund managers who are focused on a market segment which complements what IFC already does, or with fund managers that are able to make investments that IFC cannot make.
Most of the private equity funds we have committed to or invested in to date are venture capital funds, with a few funds that are active in both venture capital and buy-outs. Within venture, we have extensive exposure to the growth and expansion stages. There are very limited investment opportunities at seed stage in our markets.
Our portfolio consists mainly of generalist funds, although we also look at sector-specific funds.
We do not like country-focused funds unless the country is big enough and has enough scale. Our largest regional exposure is to Asia, but the funds team also has significant exposure to Africa. In fact, we invest more equity capital in Africa through funds than IFC does directly because on the funds side we have seen pretty good returns in the region.
In Asia we mostly have regional funds, a few (four or five) in China, but dollar-wise it is not a huge amount. In Africa it is a combination, we have a few of the country-focused funds in South Africa. We have a little bit in Nigeria, but everything else in Africa is regional.
Annually, we do between ten and 15 investments. We naturally have a very balanced portfolio, simply because IFC has been active in the emerging markets for so many years.'
What do you look for in a good private equity manager?
'Our team looks for active teams with a hands-on approach, teams that really support their portfolio companies. In contrast to other limited partners, our development mandate requires us to select funds that do not get raised easily. Every time the private market starts to show more interest in funding a certain type of manager in a certain region we have to move on to riskier territory.'
What size of investments do you make?
'We invest as little as $2m in a fund. Our largest investment to date has been $75m. Generally, we take no more than 20 per cent participation in any fund.'
How do you conduct your due diligence?
'Our due diligence process is pretty thorough. We need to understand in great detail the track records of each individual in a team and how good the team will be in implementing their stated strategy. Reference checks play a major role in our due diligence process.
IFC has a very complete infrastructure across the markets in which we operate. We use IFC specialists, for example sector specialists, to help us complete our due diligence. With our large direct and fund investment portfolio across our markets and our long history in those markets we go deep into the terms and conditions as well.
How a team generates deal flow is one thing but then they also need to understand how they can add value to their portfolio companies. The value-add is particularly important for us as a development organisation. Other investors might be ok with it when a team generates quick bucks, but we need to see that our money will contribute to the development of companies and the economy in our target regions. To be sure about this, you have to talk to the portfolio companies themselves and to other investors, shareholders and whoever can confirm what the fund managers have done.
We are also keen to see evidence of good GP-LP relationships. It is absolutely critical that we get reliable and correct information from our GPs. In addition, we always want to be on the advisory board because we believe that we cannot only add value to our funds but we also need to be engaged with our GPs. The quality of investor relations on offer is pretty varied out there.'
What would put you off investing in a certain fund?
'Fund managers that have a questionable reputation - we definitely stay away from those. We are pretty focused on issues of reputation.'
What is your position on investing in first-time funds?
'We used to do quite a number of first-time funds, raised by first-time teams with limited track records. In the more recent past, however, we have not done many of them. There are now more experienced managers out there that need our backing in order to establish themselves, but if we can trace their track record, we are more likely to invest with them.'
What advice would you give to a new private equity investor?
'Over the past few years China and India have been getting all the attention when it comes to emerging markets. We would advise investors to also look at other regions such as Latin America and Africa. Within Latin America there is an ever increasing number of opportunities, especially in Mexico, Brazil and Argentina, but other countries like Colombia will offer opportunities. There the legal and regulatory environment for private equity investments has improved significantly.
One important piece of advice I want to give is that you should go to the region and see for yourself. You have to spend time getting to know people and getting to know the players. Even if you are using an advisor, you still should have an idea of what the regions are like.
IFC, as a development organisation with a commercial view, is always happy to talk to potential new investors. We have regional offices across the emerging markets and offer a different view on emerging economies.
We have seen some pretty good returns from our portfolio, and they are getting better every year!'
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