1. DANISH CLIMATE INVESTMENT FUND
Torben Huss, Executive Vice President, IFU

2. 46 10 115 800 years bn DKK WHAT IS IFU? bn DKK
Independent government-owned fund, operating on commercial terms
800
Advice and risk capital for globalisation of Danish companies
investments in 88 developing countries
Total contracted investments of more than 46 10
115
years
bn DKK
bn DKK
of experience
invested in share capital and loans
09/11/2018
Danish Climate Investment Fund

3. A DANISH CLIMATE INITIATIVE
Public
Private
Partnership
Provides risk capital
Operates on commercial terms
for climate investments and climate-related projects
Investment with a
Danish interest
09/11/2018
Danish Climate Investment Fund

4. Challenges – investments
Private investors do not like investments with:
Country risk
Upheavals, conflicts, inefficient or corrupt legal system, etc.
Political risk
Subsidies, competition from dominant state owned enterprises, etc.
Unclear timing of cash flows
When is cash paid in?
When/how is investment repaid?
Low returns
09/11/2018
Danish Climate Investment Fund

5. Challenges – investment managers
Private investors do not like investment managers who are:
Controlled by the government
IFU’s board and CEO is appointed by the Danish government
Not investing their own money
(“no skin in the game”)
Will the team work hard enough if they have “no skin in the game”?
Not aligned with the incentives of the investors
Does the government have the same success criteria for the investments as the private investors, does IFU?
09/11/2018
Danish Climate Investment Fund

6. Solutions Challenges – investments Solution Country risk
Insurance schemes (e.g. MIGA)
Political risk
Broad geographical scope of fund – more choice of countries
Unclear timing of cash flows
Private equity type closed-end fund structure
Low returns
Preferred return for private investors
Challenges – investment manager
Solution
Controlled by the government
Independent investment committee
No ”skin in the game”
IFU track record in climate projects (12% p.a.) + IFU investment in fund
Alignment of incentives
Independent investment committee and preferred return
09/11/2018
Danish Climate Investment Fund

7. Danish Climate Investment Fund (1/2)
Terms and conditions
€175 million in committed capital
(expected total investments: €1.4bn)
€105 million – Danish pension funds
€37 million – Danish State
€33 million – IFU
Broad geography
All DAC countries
Private equity fund structure
Limited partnership with a 10 year lifespan
Preferred return
Losses shared equally
Up to 6% p.a. – private investors
Above 6% p.a. – state receives more than the private investors
Independent investment committee
3 highly experienced and reputable independent members and 2 private investor representatives
09/11/2018
Danish Climate Investment Fund

8. Danish Climate Investment Fund (2/2)
Investment strategy – highlights
Renewable energy projects only in countries where fossil fuel is not significantly subsidised
Renewable energy business case must be sound without subsidies for renewables and carbon credits
Building in-house developer capability – local developers lack skill or are too highly priced
Avoid passive or extortionate local ownership stakes, all shareholders must put capital at risk and provide value to the project
09/11/2018
Danish Climate Investment Fund