IFC proposes to invest $10m or 20% in Cygma Fund

Microfinance Focus, Dec. 31, 2009: IFC proposes to invest up to $10 million or 20% of the total fund size in Cygma Fund which will be managed by Cygma Corp, a specialized risk management and hedge advisory company that provides consulting services and education to MIVs and MFIs.

Cygma will be a ten-year close-ended Luxembourg Fonds Commun de Placement (FCP) fund with a total capital of $50 million that is projected to back up to $500 million of hedge funds in emerging market FX derivatives. The capital will serve as a reserve in forex transactions. Cygma will offer its investors leveraged exposure in currencies that is not available elsewhere.

The fund 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 to such tools, particularly in IDA and frontier markets, said a posting on IFC website.
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, the statement said. OPIC is working on a proposed guarantee product of $25 million which is subject to management approval.

The fund will also provide advisory services to IFC and its microfinance clients (MIVs & MFIs) in areas like risk management strategies, FX risk assessment and monitoring for debt and equity funds, and loan-level hedging. Cygma estimates the local currency hedging needs for microfinance in 2009 are $1.5 billion (needs were US$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.

The investors in the fund are: Cygma Fund, the Luxembourg FCP that has a portfolio of emerging markets currency exposures and a $50 million balanced asset portfolio of AA quality 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, a major contributor of intellectual and financial capital to the creation of Cygma Corp.

The project will be operated out of its headquarters based in Kennett Square, Pennsylvania.

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