Private equity investment in emerging markets has grown rapidly in recent years. Roughly $380 billion was committed to private equity funds over the past 12 years alone, with actual investment in underlying portfolio companies over the same period amounting to $280 billion. Approximately 57 per cent of this capital flow has occurred since the global financial crisis of 2008.
Sovereign is the only underwriter in the private PRI market with a specialized Private Equity product and dedicated Private Equity underwriter (who comes from a PE background).
We are able to structure risk transfer contracts for both direct investors and fund investors in emerging markets. We are able to cover debt, equity and mezzanine investments, and can enter into multi-country arrangements for a portfolio of exposures. Typical risks that we include in our policies are: expropriation (either outright or “creeping”), currency inconvertibility, remittance controls, license cancellation, political violence / terrorism / civil war, discriminatory regulations, sovereign non-payment, non-honoring of contractual obligations by governments (post-arbitration), business interruption, and forced divestiture, to name a few. Such risks can result in a total loss of capital if they are uninsured.
Our underwriting contracts with private equity investors tend to be highly customized, and we typically find that Sovereign is able to underwrite and hold the wide variety of political and sovereign risks on our balance sheet much more efficiently than a PE investor can. Our premium is almost always lower than the political risk premium used by the investors in their internal financial and returns analysis.
Sovereign is able to enter into contracts with a variety of counterparties, including: Limited Partners; the funds themselves; and/or the investing SPVs. Our maximum insured amount per investment / project is $80 million, with a maximum tenor of 15 years.
Examples of Sovereign’s coverage on private equity and asset investments are as follows:
- 3 year, $80 million, policy for a private equity fund manager focused on the metals sector. Coverage protects the fund’s pre-payment agreement with gold mines located in Asia. The Policy covers non-delivery of gold due to war / political violence, expropriation / creeping expropriation, export restrictions and / or embargo.
- a 7 year, $50 million policy for a large U.S.-based Private Equity firm whose clients are investing in a pipeline project in Latin America. The policy covers these investors for both expropriation risks as well as the sovereign credit risk associated with the project.
- a 7 year, $60 million policy covering an Australian PE fund’s investment in a power project in West Africa. The policy covers the fund against the risks of expropriatory actions, currency inconvertibility, political violence and arbitration award default following a breach of the PPA.