Microfinance Hedge Funds to Launch
Chidem Kurdas, HedgeWorld, March 21, 2007

NEW YORK (HedgeWorld.com)—Institutions that give small loans to aspiring entrepreneurs in poor countries want to tap capital markets. Hedge funds already are active in this evolving market, and a firm that specializes in microfinance is preparing to launch funds.

New York-based Minlam Asset Management LLC is starting Minlam Microfinance Fund to make loans to microfinance institutions around the world.

The idea came from institutional investors with an interest in a global macro approach to microfinance, said Minlam Managing Director and Co-Founder Michael Hokenson, speaking at a conference organized by Credit Suisse and Acción, a nonprofit that has helped develop microfinance.

"We understand the business and seek exposure," Mr. Hokenson said, adding that Minlam will be complementary to other financial players in microfinance. The strategy combines macroeconomic perspective with credit analysis.

He declined to give information about Minlam Microfinance Fund, citing legal restrictions on publicizing private placement offerings, but said the firm has commitments from investors and the fund is expected to get going this year.

According to another source, after starting the loan fund Minlam plans to launch a stock fund that will provide equity capital to microfinance institutions, either this year or in 2008. The two funds will draw on the same expertise and research.

The Minlam investment committee includes Sudeep Singh, emerging market portfolio manager at Caxton Associates, the multi-strategy hedge fund led by Bruce Kovner. Caxton had assets of $13.3 billion as of one year ago.

Mr. Hokenson previously founded Minlam Inc., a fair-trade handicraft design and manufacturing business based in Nepal. He said "minlam" is Tibetan for "dream."

Micro-loans to poor producers average only $100 a loan. But microfinance investment vehicles have grown fast and had combined assets of $4.2 billion in 2006, up from a little more than $1.1 billion in 2004, according to Elizabeth Littlefield of the World Bank, who spoke at the Acción conference.

ProCredit Holding AG is the largest such investment vehicle with $390 million, she said. Blue Orchard Finance has several funds with combined assets of $500 million.

Muhammad Yunus, a Bangladeshi economist and banker, won the Nobel Peace Prize in 2006 for pioneering microfinance as a way to lift people—in particular women in underdeveloped countries—out of poverty by giving them access to credit, not as charity but as loans that are expected to be repaid.

Mr. Yunus pursues this goal with his Grameen Bank, which reportedly has a high rate of loan repayment. Pensions, insurance companies and for-profit investment vehicles, including hedge funds, provide financing to local institutions like Grameen Bank through various routes.