Pan-African Transform Health Fund surpassed goal, raised $111 million

The Transform Health Fund, a Pan-African blended finance investment vehicle, reached its final investment close at $111 million — which is $11 million over its target. The fund aims to invest in high-impact businesses providing private health care solutions across the continent, reaching underserved populations. With its close, the fund won’t accept new investors. Moving forward, its teams will make investments and pay returns to investors. They’ve already invested in three companies. Investors include a combination of development finance institutions, corporations, impact investors, donor-advised funds, and philanthropies, such as the International Finance Corporation, USAID, Proparco, Swedfund, U.S. International Development Finance Corporation, Merck & Co., Inc., Philips, FSD Africa Investments, Chemonics International, Grand Challenges Canada, Skoll Foundation, and UBS Optimus Foundation. The fund is managed by AfricInvest, one of the most experienced impact investors on the continent. This is the first time they’ve managed a dedicated health fund. The other partner is the Health Finance Coalition, a network of top health donors, investors, and technical partners hosted by Malaria No More. “I think the diversity of investors and the surpassing of our target shows that there’s real appetite — a real hunger — for this kind of investment. We need much more capital like this out there in the world,” said Martin Edlund, executive director of the Health Finance Coalition and chief executive officer of Malaria No More. A $100 million fund Edlund, who was one of the fund’s architects, said the fund was designed to demonstrate that health care for the most vulnerable communities can be investable. “That’s not an easy proposition. Healthcare is inherently a risky business, especially when you’re talking about really trying to improve quality, access, affordability, innovation, and sustainability for rural, periurban, and low-income audiences,” he said. But it’s a necessary proposition because governments aren’t spending enough on health care. South Africa is the only African country to have met and sustained the Abuja Declaration of dedicating at least 15% of government expenditures on health. Thirty-two African governments are spending more on external debt payments than on health care. This is coupled with “static, possibly declining donor aid,” Edlund said. “In that environment, we really need private capital investing in private healthcare delivery that complements public offerings.” “We’re in a moment where we have to be creative to meet Africa’s healthcare needs. We can’t expect that governments are going to be able to do that alone, or that donors are going to be able to afford that alone,” Edlund said. “We need creative models that can bring innovations to the market.” However, less than 2% of global impact investments goes toward health-related investments in Africa. This fund, which provides debt and mezzanine financing — a hybrid of debt and equity financing, is working to turn that around. AfricInvest and the Health Finance Coalition began designing it about three years ago. They set a target of raising $100 million. When they reached that figure, they weren’t supposed to take on more investment. “But we found that there was sufficient interest and more catalytic capital — the more risk-taking capital that could come in,” Edlund said. And so they went back to the existing investors for permission to modify the fund’s agreement to raise beyond $100 million. The fund has a lifetime of 12 years, and they expect to make 20 to 25 investments during this time, said Noorin Mawani, co-fund manager at AfricInvest. There will also be a recycling of some of the returns on investments, which will be funneled into new investments, so the ultimate investment figure is expected to be close to $200 million. The recipient companies will receive long-term investments, known as patient capital, which gives those “who need more time to grow responsibly” the space to do so, Mawani said. It also provides tailored financial instruments — combinations of debt and equity, which creates affordable debt for each investment, she said. The blended finance model brings together catalytic funds — in which investors get a lower return on their investment and take on more of the risk — and use those funds to make the investments more appealing to draw in commercial finance. And this ultimately lowers the cost of borrowing for businesses. The blended structure of the fund is novel, combining these two different classes of investors with different risk and return expectations — catalytic and commercial. Investors are given an option of how they want to invest, which allows them to “grow the pie” by bringing in investors who may not have otherwise felt it was in their risk appetite to invest, Mawani said. “This brings in a whole new type of investor and provides the opportunity for Africa to see a greater share of international capital flows,” she said. “For example, there are some investors who are really interested in our investment strategy but want downside protection.” The way they modeled the fund, they needed at least 35% of the funding to be catalytic but ended up with 40%. “The fact that we surpassed our target and the fact that we surpassed our catalytic minimum really shows that people are buying into this value proposition,” Edlund said. In 2023, the fund received its initial tranche of $50 million. It’s already funneled $20 million into three investments. This includes Insta Products, the largest manufacturer of ready-to-use therapeutic foods in East Africa that can be used to combat malnutrition in crises such as flooding or drought. The company has supplied UNICEF, the World Food Programme, USAID, Médecins Sans Frontières, and Action Contre La Faim. They’ve also invested in the Africa Healthcare Network, the first and largest dialysis chain across Sub-Saharan Africa, and Lapaire Glasses, a network of more than 80 optical shops that provides affordable eye care solutions in West and East Africa. Crafting an investable pipeline Investors face challenges sourcing a pipeline of quality investments that have geographic spread across the continent — and they often can’t budge on their financial return requirements, Edlund said. And businesses face challenges in preparing to grow. “Health care is hard in these markets and entrepreneurs are often consumed, understandably, by what’s right in front of them: Patients, clinics, and how to provide quality care. And so to be able to step back and do that business and financial and expansion planning is something they often don’t have capacity for,” Edlund said. Another novel part of the fund is the technical support provided, he said. The fund’s team is working with entrepreneurs to strengthen their operations, business plans, financial structures, value propositions, and examine new product lines and new models to help them expand their reach across the continent, deeper into rural communities, and reach vulnerable audiences. “Given the scarcity of scalable, investible deals that serve the bottom of the pyramid where innovation is needed, the health finance coalition provides additional finance and health expertise across Sub-Saharan Africa to act as an incubator to get deals investment-ready,” Mawani said. Additionally, they’re helping some businesses move from receiving grant funding to investment funds that they will have to repay. “It takes a lot of work to get them ready for investment dollars and to really help them think about how to kind of build on the foundation of the grant dollars and revenues they have,” Edlund said. Many entrepreneurs also don’t often understand how government health insurance schemes work or how to attract governments and international aid agencies as payers. The fund can help those businesses understand how these entities might become customers for their products. When deciding whether to invest in a company the fund’s team and the investment committee have a scoring system that rates the impact of an investment in areas such as affordability, reduction in deaths, and access for underserved populations. The fund’s team is incentivized to invest in deals with higher impact scores — using a portion of profits from the returns. “The way we give our impact framework ‘teeth’ by rewarding the team financially for making very high-impact deals happen is quite rare,” Edlund said.