IFC to Invest $10M in Cygma Fund
Hyderabad, India, December, 30 2009 -
IFC proposes to invest up to $10 million or 20% of the total fund size (US$6 million in the first closing) in Cygma which will be a ten-year close-ended Luxembourg Fonds Commun de Placement (FCP) fund. The fund’s total capital of $50 million is projected to back up to $500 million of hedge funds portfolio of microfinance investors who seek to invest in local currency markets.
The capital will serve as a reserve to function as a needed counterparty in FX transactions. Cygma will offer its investors leveraged exposure to a diversified portfolio of long positions in illiquid exotic currencies not available anywhere else.
The portfolio will consist of multiple forward exchange contracts in the frontier currencies of Latin America, Eastern Europe, Central Asia, South and Southeast Asia, Middle-East, North Africa, and sub-Saharan Africa. The capital raised will serve as a financial backstop to the portfolio of foreign exchange forward contracts, providing liquidity of last resort to the settlement of these contracts.
IFC proposes to invest in Cygma Fund which is being set-up as a transparent and cost-effective risk management and hedging platform in mobilizing sustainable local currency financing to MFIs that normally don’t have access in IDA and frontier markets.
The first closing will be for a minimum of $30 million, projected for Q1 of 2010. The second closings will be for an additional $20 million (total a minimum of $50 million) and be completed in early 2010. Investors including, EIB, KfW, and several other DFIs have already begun due diligence preparation. OPIC is currently working on a proposed guarantee product of $25 million which is subject to management approval.
The Cygma project will consist of three entities Cygma Fund, the Luxembourg FCP that is comprised of a portfolio of emerging markets currency exposures and a $50-million balanced asset portfolio of AA quality or better investments that serves as a backstop to the portfolio; Cygma Management S.à.r.l., a Luxembourg Fund Management company; and Cygma Corp., a U.S. investment management and advisory company that advises the Fund and clients in FX risk management; and Chatham Financial, the contributor of intellectual and financial capital to the creation of Cygma Corp., the investment management and advisory company.
Cygma Fund will be managed by Cygma Corp, a specialized risk management and hedge advisory company, which provides consulting services and education to MIVs and MFIs. The project is a global fund which will be operated out of Kennett Square, Pennsylvania. Cygma estimates the local currency hedging needs for microfinance in 2009 are $1.5 billion (needs were $750 in 2006 alone). Cygma projects to provide $500 million in local currency hedging for microfinance through reducing FX risk to both MFIs and MIVs.