Investment Management Policy
1. Purpose
BridgeFort is a private equity holding company which exists to create sustainable shareholder value for all of its shareholders in all classes. This will be achieved through the purchase, management and transformation, and subsequent sale of investments with a return. This investment management policy outlines the process by which investments shall be selected, invested in, disposed of, and managed by BridgeFort towards the stated goals of BridgeFort to enable these returns. Our strategy shall be to extract maximum value out of current investments, and to seek out new investments to create shareholder value.
2. Selection
Competition for investment opportunities in Zimbabwe is low but is growing. BridgeFort intends to set some broad parameters to guide this search for valuable opportunities although these may change as circumstances change. BridgeFort shall initially seek out investments in Zimbabwe and has a preference for transactions typically sized between USD1,000,000 and USD10,000,000. BridgeFort shall usually invest in private equity, but where specific opportunities exist in other asset classes, these will be considered in light of the overall investment strategy.
BridgeFort shall only enter investments at fair to attractive valuations and will negotiate to achieve this. BridgeFort shall usually seek out investments which are priced to yield an internal rate of return (“IRR”) of a minimum of 20% unless the investment is property or asset rich businesses where a lower IRR may still be attractive. BridgeFort shall also endeavour to minimize risk to shareholders using covenants and other structures to minimize risk. This includes the consultation with the holders of a class of shares if there is a major transaction involving more than 30% of the market value of that class of shares when a shareholders meeting will be called to vote on that decision.
Furthermore, BridgeFort may not take on any debt or provide any guarantees in excess of USD100,000 unless such debt or guarantees can be settled by BridgeFort’s decision to convert the debt or obligation arising from a guarantee into equity or through the transfer of an underlying asset, at the sole discretion of BridgeFort if required.
2.1 Return objective
The return objective of BridgeFort is measured through the real internal rate of return (“IRR”) of investments. There is no observable benchmark that we shall use to measure performance but rather shall evaluate opportunities with an absolute IRR of 20% across our investments. The 20% IRR may be reduced with the approval of the Board where one or more of the following factors exist;
- Larger business
- Realisable assets are significant in relation to the value
- The business includes its’ own properties, or the acquisition is predominantly property
- The business has high growth prospects
- Strong management with clear expansion opportunities
- Ability to strip out costs and/or improve operating efficiencies – particularly if combined with an existing portfolio company
2.2 Characteristics
BridgeFort shall generally target investments with strong growth potential and/or a solid earnings history. This growth potential may be identified as a result of strong management, cheap distressed assets, or underperforming brands or assets. Key target areas for divisions will include construction supplies, renewable energy, property, export focused businesses, manufacturing, financial services, services and agro-industrial. We will consider agriculture, tourism and possibly others should attractive opportunities arise and provided we are able to bring in the right skills to evaluate these opportunities. Our intention is to scan the market constantly for opportunities which we can add to these divisions.
2.3 Asset allocation
Asset allocation at BridgeFort Capital level is not a major consideration as the economic interests of assets within various portfolios belonging to classes is separate. Within each class however, BridgeFort shall seek to diversify the assets within each portfolio as described in 2.5. By its very nature, private carries a higher risk than typical listed shares and hence shareholders will be encouraged to diversify their risks through asset allocations to several classes of shares.
2.4 Liquidity
BridgeFort shall invest in private equity. Private Equity has a long-term time-horizon and cannot be liquidated at full value in a short time frame. It is the intention of BridgeFort that all funds raised are invested and as a result it is not likely that BridgeFort shall hold any liquid assets. Any uninvested funds which arise through placements, dividends from investee companies, or proceeds from disposal of shares in investee companies, will either be returned to shareholders, invested according to 3.3, held for further private equity transactions or otherwise as determined by the board after consultation with shareholders of the class to which the funds belong.
2.5 Diversification within classes
The board and management shall attempt to achieve diversification within each portfolio belonging to each separate class of shareholders by having multiple assets within each portfolio representing a specific sector or value chain within the economy to protect shareholders of that class from under – or non -performing assets within each portfolio.
2.6 Transaction types
Management and the board shall pursue any kind of transaction that is assessed likely to achieve BridgeFort’s return objective. These transactions may include but are not limited to leveraged buyouts, distressed asset purchases, secondary share purchases, primary share issues, early-stage companies or ventures.
2.7 Environmental, Social and Governance (“ESG”)
Management will consider the ESG status of entities considered for investment. The criteria for how these are assessed, and targets and minimum requirements shall be developed and maintained by the BridgeFort Board.
3. Investment
BridgeFort management shall scan the environment for opportunities. After selecting the most suitable opportunities, management shall provide a detailed assessment of the opportunity including an analysis of the competitive position of the business, the management of the business, growth prospects, a valuation, and IRR analysis.
Based on this assessment, management will prepare and present these findings to the BridgeFort Board who shall then assess the opportunity and make a decision on a majority basis. Management shall then undergo a process of creating the transaction documentation.
Where the proposed investment is within a division of which the associated class of shares are already listed, a Circular to shareholders shall be prepared and sent to shareholders outlining the merits of the transaction, investment particulars, and the rationale. Shareholders shall then vote on the transaction at an extraordinary general meeting. Transactions will typically be contingent on conducting an appropriate due diligence. This due diligence may include legal, financial, commercial, and otherwise as appropriate and as determined by the BridgeFort Board and considering warranty provisions of transaction agreements, risk factors and the like. Where necessary third-party skills will be involved in the due diligence review and/or for tax and structuring advise.
As described in BridgeFort’s risk management policy, BridgeFort shall not have the ability to borrow or use leverage to conclude a transaction, except where borrowings used can be converted, at the sole discretion of BridgeFort, in full and final settlement of the borrowings, into the class of shares of the class used to conclude the transaction or through the transfer of an underlying asset controlled by BridgeFort. This is a cornerstone of BridgeFort’s risk management policy to prevent any cross-contamination between classes of shares.
3.1 Division of responsibility
Board
The BridgeFort Board is ultimately accountable for the assets in the portfolio but have decided that the return objective is more likely to be met if selection, ongoing management, and oversights is partly delegated to BridgeFort management. Full power to make investments rests with the BridgeFort Board who, where necessary, may bring in experts or consultants to assist with understanding the opportunities. The BridgeFort Board is also charged with creating committees of the board as required by local governance requirements and also as required for the efficient and effective discharge of the boards duties whilst the Board retains overall responsibility.
BridgeFort management shall be assessed, selected, and retained by the BridgeFort Board at their complete discretion.
BridgeFort Management
Management shall be responsible for scanning the market and providing a detailed assessment of investment opportunities to the BridgeFort Board. BridgeFort management shall also assist the BridgeFort Board in overseeing the underlying investment, providing adequate representation of BridgeFort’s interest and detailed reporting to the BridgeFort Board as described in 4.1.
3.2 Standard of care
In exercising their responsibilities, both BridgeFort management, and the BridgeFort Board will act in good faith and will discharge their responsibilities with extreme care and skill in the service of all BridgeFort stakeholders.
3.3 Uninvested Funds
It is not the intention of BridgeFort to have a material amount of funds uninvested. If, however, and for whatever reason material uninvested funds are retained by BridgeFort, the BridgeFort Board will oversee BridgeFort management in investing these funds into suitable assets prior to an approved private equity transaction. Suitable assets may include, foreign currency assets, liquid shares, and other inflation protected assets as determined by the BridgeFort Board insofar as this is possible.
4. Ongoing Management
BridgeFort management shall be responsible for the management of the underlying investments of each class. It will be a prerequisite of any transaction conclusion, that BridgeFort Management be a part of major committees and that it holds board representation in investee companies or appropriate other leadership positions within other investments. These rights shall be described in formal written agreements with the other parties. Only investments where these rights are retained will be considered. This is key in giving BridgeFort the ability to have some sway and access in the underlying investee companies and to adequately represent the interests of the shareholders linked to that underlying investment.
Management shall use this influence in order to further shareholder interests by assisting in and execution of a defined growth strategy. Management shall report to the board, and to shareholders of each class, the performance of underlying investments within each portfolio on a semi-annual basis and with trading updates quarterly.
4.1 Reporting
In order to ensure that the BridgeFort Board are able to fulfil their duties with respect to ongoing management of the portfolio, management shall provide detailed reports at least quarterly to the Board. Such reports shall include but not be limited to, the underlying performance of each investee company, material issues facing the portfolio company, actions taken and to be taken by the management teams of those investees, or proposed changes to the investment.
Reports detailing specific new investment or disposal opportunities shall be presented to the BridgeFort Board by BridgeFort management on an adhoc basis. These shall be thorough assessments of opportunities consistent with 3 and 5
Additionally, any material change to the business, performance, or investment of investee companies shall be reported in writing to the BridgeFort Board within seven days of BridgeFort Management becoming aware of its occurrence. The definition of material shall be determined and periodically revised by the BridgeFort Board.
4.2 Investee Board & Committees
BridgeFort shall ensure that each board of directors, and any appropriate committees of investee companies shall have BridgeFort representatives as members. These representatives may be BridgeFort management, members of the BridgeFort Board, or third-party experts whose skills are appropriate, appointed by the BridgeFort board as its’ representatives.
4.3 Conflicts Declaration
Any conflicts of interest between BridgeFort management, BridgeFort Board members, investee companies, and their management and directors, shall be declared upfront to the BridgeFort Board, or within 3 days of such conflict being identified, who shall take any action deemed necessary in order to mitigate such conflicts.
Any conflicts resulting from membership on investee boards, committees, or access to privileged information shall be declared upfront by the BridgeFort representatives to the BridgeFort Board and appropriate action taken.
The BridgeFort Board shall take reasonable measures to assess the independence of management as it relates to specific investee companies. Any conflict of interest possessed by a member of the BridgeFort Board, or BridgeFort management must be disclosed and resolved by the BridgeFort Board.
4.4 Synergy
Part of the strategy of management shall be to as far as possible unlock value from possible synergies across investee companies not just in one class but across all classes. Management will aim to use the collective buying power of the investee companies collectively to achieve reduced costs in a variety of areas from consumables to services as well as to cross sell products whenever possible.
4.5 Deep partnerships with management
The BridgeFort Board and management shall pursue deep partnerships with management of investee companies, developing strong working relationships, and developing strong, and robust incentives with management to align their interests and maximize returns to shareholders.
Management shall aim to utilize their skills to assist investee company management with non-day-to-day activities. Specifically, to assist with the development of a comprehensive strategy, provide advice whenever needed, help with appropriate reactions to legislative changes, economic and market insights, development of strong controls, thorough standard operating procedures (“SOPs”) and the design of robust incentive schemes to align the interests of management of the investee companies management with shareholders.
Due to the smaller size of the companies to be targeted by BridgeFort it is expected that some may benefit from shared services in certain areas. BridgeFort management will aim to identify weaknesses or opportunities for improvement within each investee which can more effectively be dealt with through shared internal or external services. Such areas may include human resources, payroll, training, marketing, logistics, internal audit, aspects of financial oversight and accounting amongst others. The aim is to improve operational efficiencies and free up investee companies’ management to focus on creating value.
4.6 ESG
BridgeFort shall use their shareholding in investees to further ESG principles within investee companies. Progress towards positive environmental and social impact, along with strong governance within investee companies will be a priority of the BridgeFort Board and management.
5. Disposal
It is the intention of BridgeFort to exit investments 5-7 years after purchase. BridgeFort shall use their best efforts to achieve these exits, but will not compromise value in order to achieve them without explicit shareholder guidance. Therefore, exits will likely be based on market conditions, generally, and specifically regarding each separate asset. Management shall continually assess market conditions and potential exits. Exits will likely take the form of trade sales, or spin off separate listings, although other forms of exit will also be explored.
After identifying an exit opportunity for a specific asset, management shall prepare a preliminary report on the particular exit prospect. This report shall be presented to the BridgeFort Board who shall determine if it should be put to shareholders. If the BridgeFort Board deems it appropriate, a disposal Circular including detailed transaction specifics will be drafted and sent to shareholders of the class to which the asset belongs. As part of this process, shareholders will be asked to determine whether disposal proceeds are distributed to shareholders, or retained for future investment.
Should the holders of 75% of the shares of any particular class wish to distribute the ownership of an investee company or other asset to themselves through a dividend in specie, BridgeFort will affect that transaction on their behalf.
5.1 Division of responsibility
Management shall be responsible for providing a detailed assessment of the disposal opportunities to the BridgeFort Board. The BridgeFort Board shall be responsible for a decision on the disposal, and where necessary may bring in experts or consultants to assist with understanding the opportunity.
5.2 Standard of care
In exercising its responsibilities, both Management, and the BridgeFort Board will act in good faith and will discharge their responsibilities with extreme care and skill in the service of all BridgeFort stakeholders.
6. Fees
BridgeFort fees shall be on a cost-plus incentive basis. The component of costs which relate directly to a specific class for example listing costs which are based on market capitalization of the listing shall be payable in full by the investee companies of that class. Additionally, an equal or pre-agreed share of the remainder of the costs for example the management and board of directors of BridgeFort shall be payable by each underlying investment or class. Incentive fees shall be charged on future investments on a pre-agreed and documented basis.
It is the intention of the BridgeFort Board that management interests are deeply aligned with the interests of shareholders. As a result, the compensation of management shall be split between an appropriate amount to cover the ongoing costs of the management team and then to have an incentive which shall be linked largely to the performance of the underlying investments. Again, this may be split into an initial upfront fee upon completion of a deal, and some ongoing fees relating to the growth in the underlying investment. The details of the incentive shall be spelt out per transaction or class of shares prior to concluding the transaction.
