Finance in Motion works predominantly through layered capital structures, representing a public-private partnership (PPP) model. From the onset of such Fund structures and over many years, Finance in Motion has contributed toward defining and refining this model, which has become a blueprint for the industry. Through PPPs, public funds can be leveraged very effectively to mobilize private capital for the investment targets of Finance in Motion’s mandates.
At the core of these PPP funds are different share tranches that reflect a different risk-return profile:
- Public donors investing in junior shares (first loss piece)
- Development finance institutions and international financial institutions investing in senior or mezzanine shares
- Private investors investing in fixed-income notes
By using donor grants as a risk cushion for attracting private investors, the funds advised by Finance in Motion can leverage a multiple of the initial grant contributions for the target group.
Note holders are first in line to receive their financial interest and their investment can be considered very secure. Holders of the junior, mezzanine, and senior shares are served out of the net income of the funds as well, but according to an income waterfall structure that reflects their respective ranking.
The junior shares bear the first capital loss risk incurred in the fund. The senior shares will only suffer a capital loss to the extent that the junior and mezzanine shares are depleted, followed by notes, which generally account for a maximum of 30%-40% of the total capital structure and therefore have a risk protection of 60%-70% of subordinated capital tranches.