Types of funds operated by ADB
The Private Sector Operations Department of the Bank has many different types of funds in its portfolio. Funds vary according to their structure, the source of the capital raised, and how that capital is invested.
Most of our funds have one of two basic structures.
- In an open-end fund, the manager agrees to buy back any shares from investors at the daily published net asset value. The size of the fund changes as investors invest or sell.
- In a closed-end fund, a fixed capital sum is raised, and the shareholder group is then closed. Such funds can have defined or indefinite life, but the size of the fund is constant until liquidation. Investors can exit by selling their shares to other investors, but not by redeeming their capital from the fund.
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International Portfolio Investment Funds
Closed-end funds of this type helped open emerging markets to foreign capital, because they reduced government concerns about foreign control of corporations:
- Funds buy securities listed on local stock exchanges.
- A diversified, liquid portfolio.
- Securities include equity, quasi-equity, corporate debt, and government debt.
- International portfolio investors usually provide capital.
- Funds do not want to control companies' management.
Venture Capital Funds
These funds typically buy significant equity stakes in small-and medium-scale enterprises, and may provide management input.
- The main objective is capital gain.
- Securities are usually unlisted at the outset, and illiquid.
- Typical fund size is $20 million to $30 million.
- High risk, so the portfolio is diversified.
- Unlikely to show good results in the early years.
- Requires substantial gains from a few successful investments.
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Private Equity Funds
These funds buy minority stakes in established but unlisted companies. Unlike venture capital funds, investee companies are often large, and total fund size may be several hundred million dollars.
Domestic Mutual Funds
These funds raise money from investors within a country and typically buy securities listed on the local stock exchange(s). They are usually open-end funds, allowing small investors to exit at any time.
Debt Funds
These funds invest in senior and subordinated debt instruments, in local and foreign currencies:
- the primary objective is regular income for investors, not capital gains
- risk for investors is significantly lower than for equity funds
- useful source of long-term debt for capital-intensive projects in developing countries.
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Other international financial institutions support funds involving grants, or financing at below market rates, to strengthen the fund's viability. Examples:
- credit-enhanced funds, leveraged through low-cost, government-guaranteed borrowing
- donor-sponsored funds in which start-up or operating costs are subsidized
- microfinance projects, which usually have their start-up costs subsidized.
