Truestone, a frontier market impact investor, has announced plans to launch the Mano River Transition Fund that will invest up to $50m into SMEs across Sierra Leone and Liberia.

Speaking on the sidelines of the AFSIC conference in London, Jack Ovens, Senior Analyst at Truestone Impact Investment Management, said that the Fund is targeting investment opportunities between $500k and $5m into businesses serving low to middle income consumer bases.

Truestone has been building businesses in Sierra Leone over the last decade, establishing itself as one of the most effective social impact investors in the region. 

Despite operating in one of the most commercially challenging environments in the world, Truestone has proved that long term capital can deliver successful financial and social outcomes.

Truestone has established seven small and medium-sized businesses (SMEs) domestically through its team in Sierra Leone, across multiple sectors and currently at varying stages of growth. 

Truestone’s portfolio has been primarily funded by private investors, alongside co-investment from a number of development finance institutions including FMO, Triple Jump and Cordaid. 

Ovens said: “Since 2009, Truestone has been investing in West African start-ups and scale-ups in some of the region’s most promising growth stories achieved via our ‘three pillar’ impact investment strategy: developing wealth creation, measurable social impact and good governance across our portfolio companies. Thanks to this we are now helping place the Mano River region on the investment map for new institutional investment. In the past year we have co-invested alongside several DFIs, some of whom who were investing in Sierra Leone for the first time.”

Truestone's investment strategy for The Mano River Transition Fund is to invest $20m into existing portfolio investments and $30m into new ventures. 

“We mitigate against associated risks and high costs of access that first-time investors experience by presenting a pipeline of existing portfolio companies currently managed by Truestone which are poised for significant scaling,” Ovens said.

“The qualifying companies that we have identified for follow-on investment are cash flow positive and poised for scaling. By supporting well-managed companies that share the same DNA as Turestone, we believe we can help develop the next generation of SMEs that will deliver sustained commercial success and significant measurable social impact for this emerging African region,” he added.

The Fund is targeting an IRR of 12-15% and will focus on the following sectors: agriculture, financial inclusion, consumer goods and services, and leisure & tourism.

“We focus on companies within fast growing sectors with high, intentional social impact potential. Any investment we make must adhere to Truestone’s ESG standards and must be able to demonstrate a quantifiable social and/or environmental impact. We measure and report on the social outcomes.” 

The Mano River region is occupied by Sierra Leone, Guinea, Liberia and Cote d'Ivoire. 

Of these countries, Sierra Leone and Liberia will be of investment focus for the Truestone Mano River Transition Fund.

These nations are most recently associated with suffering from the Ebola outbreak in 2014-15. Prior to the epidemic, Sierra Leone and Liberia recorded impressive economic performance with 11.3% and 5.9% GDP growth rates respectively, driven by strong performance in mining and agriculture sectors.

Post Ebola, these countries are poised for sustained economic development in the medium to long term, in line with IMF growth rate predictions, which forecast these nations to be some of the fastest growing African economies over the next four years. 

Ovens said that Sierra Leone is already demonstrating its recovery as an attractive investment environment. 

With healthy population growth and an emerging middle class, the region is experiencing increasing consumer demand and foreign direct investment, which has more than trebled year-on-year from $138m in 2016 to $560m in 2017.

“We are seeing more and more private equity interest focusing on the region, with a number of funds launching in the last 12 to 18 months. In a post-Ebola environment, the Mano River region offers fertile ground for investment: improving macroeconomic fundamentals with low competition and significant untapped opportunity across multiple sectors,” Ovens said.

“Despite these attributes, the private equity landscape within the region remains young, and the challenges for setting up and delivering successful results are varied and complex for first-time fund managers. We believe that our ten year track record of operating in the region helps differentiate ourselves from competitors,” he said.

“We believe there will be attractive exit potential throughout the life of the fund with a core demand from trade buyers and a gradual strengthening of the secondary buy-out market,” he added.