GAO

United States General Accounting Office

Briefing Report to the Chairman and the 

Ranking Minority Member, 

Subcommittee on Foreign Operations, 

Committee on Appropriations, U.S. 

Senate

May 2000 OVERSEAS 

INVESTMENT

The Overseas Private 

Investment 

Corporation’s 

Investment Funds 

Program

GAO/NSIAD-00-159BR

Page 1 GAO/NSIAD-00-159BR Overseas Investment

Contents

Letter 3

Briefing Sections Briefing Section I: Overview 8

Briefing Section II: OPIC’s Fund Concept Selection Process 20

Briefing Section III: OPIC’s Fund Manager Selection Process 22

Briefing Section IV: OPIC’s Investment Funds Financial Standing and 

Performance 24

Appendixes Appendix I: Results of GAO Review to Determine Origin of 

Investment Fund Concepts 34

Appendix II: Results of GAO Review to Determine Fund Manager 

Selection Process 35

Appendix III: Objectives, Scope, and Methodology 36

Appendix IV: Comments From the Overseas Private Investment 

Corporation 38

Appendix V: GAO Contact and Staff Acknowledgments 40

Abbreviations

OPIC Overseas Private Investment Corporation
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-285132 Letr

May 9, 2000

The Honorable Mitch McConnell

Chairman

The Honorable Patrick Leahy

Ranking Minority Member

Subcommittee on Foreign Operations

Committee on Appropriations

United States Senate

The Overseas Private Investment Corporation is an independent, 

self-sustaining U.S. government agency1

 created in 1969 to assist U.S. 

investors overseas by providing political risk insurance,2

 financing, and 

other investment services. The Overseas Private Investment Corporation’s 

investment funds program was created in 1987 and has committed

$2.3 billion in financing (loan guaranties) since then to support 26 private 

equity funds currently operating in developing countries and emerging 

market economies. 

These funds aim to promote broad U.S. foreign policy and strategic goals 

by investing in countries or regions that are making the transition to market 

economies or are otherwise of foreign policy interest to the United States, 

such as the Balkans, the newly independent states of the former Soviet 

Union, and sub-Saharan Africa. According to agency officials, investment 

funds also serve as a catalyst for private sector development by providing 

incentives for investment in countries where U.S. investors might be 

unwilling or unable to invest without U.S. government support.

The investment funds are managed by private sector individuals or groups 

selected by the Overseas Private Investment Corporation. The fund 

managers establish the fund as a limited partnership or limited liability 

company and are responsible for raising the capital for the fund from 

private sector equity investors. The Overseas Private Investment 

1

As part of the Consolidated Appropriations Act of 2000 (P.L. 106-113), the Congress 

authorized the agency to use its own funds for administrative expenses ($35 million) and for 

credit programs ($24 million).

2

Political risk insurance covers investors for up to 20 years against losses due to currency 

inconvertibility, political violence, and expropriation.
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Corporation’s financial participation in the investment funds takes the form 

of loan guaranties that cover the risk of default for any reason.3

 The 

guarantied loans have terms of 10 to 12 years, and the guaranties are 

backed by the full faith and credit of the U.S. government. 

As of December 31, 1999, there were 26 Overseas Private Investment 

Corporation-supported investment funds in operation, and the agency had 

committed about $2.3 billion in loan guaranties to the 26 funds. However, 

because these loan guaranties cover principal and interest, the maximum 

potential loss due to possible nonperformance by borrowers is about 

$3.4 billion ($2.3 billion in guarantied loan principal and about $1.1 billion 

of estimated interest4

 that could accrue over the life of the guaranty). In 

addition to Overseas Private Investment Corporation-supported financing, 

the funds are comprised of about $1 billion in equity from private investors, 

which is not guarantied by the agency. 

To ensure that investment fund procedures would be more transparent 

(open), clearly defined, and consistently applied, the President and Chief 

Executive Officer of the Overseas Private Investment Corporation 

launched an improvement plan in 1998. However, virtually all of the 

investment funds were created before the improvement plan was put in 

place.

The Senate Committee on Appropriations directed us to review the 

Overseas Private Investment Corporation’s progress in improving the 

management of the investment funds program.5

 In conducting this work, 

we examined how the agency (1) identifies and approves investment fund 

concepts and (2) selects fund managers. In addition, we are providing 

information on the funds’ performance to date and risk levels assigned to 

the funds.

3

The investment funds program includes one fund supported through a $20 million loan. All 

other funds were supported through Overseas Private Investment Corporation loan 

guaranties.

4

In the agency’s 1999 Annual Report, the Overseas Private Investment Corporation 

estimated the potential interest to be $1.1 billion as of September 30, 1999.

5

Senate Committee on Appropriations, Foreign Operations, Export Financing, and Related 

Programs Appropriation Bill, 2000, Senate Report 106-81 (June 17, 1999).
B-285132

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Results in Brief The Overseas Private Investment Corporation has identified and approved 

investment fund concepts through three different mechanisms. First, the 

agency has identified the need for funds in specific regions or sectors. 

Second, funds have been created in response to administration or 

congressional foreign policy initiatives. Third, prior to its investment fund 

improvement plan implemented in 1998, the agency created several (10) 

funds based on unsolicited proposals received from the private sector. 

Under revised procedures adopted as part of its 1998 improvement plan, 

the agency publicly solicits proposals from prospective private sector fund 

managers. The prospective managers submit business plans in response to 

a “call for proposals” posted on the agency’s website and advertised in 

business and trade publications. Agency officials stated that all of the fund 

managers, past and present, were selected on the basis of experience and 

proven success with investment funds or in a related industry. The four 

fund managers that we interviewed all indicated that the Overseas Private 

Investment Corporation completed a rigorous background examination of 

their experience and qualifications. However, we reviewed the Overseas 

Private Investment Corporation’s internal reports, correspondence, and 

other relevant documents for the 26 operating investment funds and 

determined that 14 fund managers were not selected through a competitive 

process; the remaining 12 fund managers were selected after the agency 

had solicited or considered other proposals. Overseas Private Investment 

Corporation officials acknowledged that, prior to 1998, it was not the 

agency’s policy to solicit competing fund manager proposals for each fund.

Measuring the financial performance of the funds is difficult, as the funds 

typically have 10- to 12-year life spans and, thus, long maturity periods for 

their investments to reach their goals. The agency indicated that fund 

managers generally expect to achieve a final return of at least 20 percent. 

However, it is especially difficult to draw meaningful conclusions about 

fund performance to date because the investment funds have been in 

operation for about 5 years on average—about one-half of the projected life 

span. The Overseas Private Investment Corporation provided us with the 

fund managers’ estimates of fund performance, which show that 13 funds 

presently have a positive return on investment while 10 funds currently 

show either a zero or negative annual average return (3 funds have not 

started investing). These estimates cannot be used to predict the future 

performance of the funds, as they are only a snapshot of current 

performance. According to the agency, the one fund that is now close to 

fully liquidating its investments is expected to repay the Overseas Private 
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Investment Corporation guarantied loan even though the final return of the 

fund cannot yet be determined.

The Overseas Private Investment Corporation uses financial performance 

data and several other criteria in assigning an overall risk rating to each 

fund. As of September 30, 1999, 16 of 23 funds with investments had 

passing ratings, indicating that the funds at least had a minimum ability to 

repay the loan. The seven remaining funds had risk ratings that reflected 

concerns about the repayment prospects of the loan. Agency officials 

indicated that most of these concerns were related to the potential impact 

of host-country macroeconomic factors on the funds’ investments. 

However, no funds are currently rated as a loss. To hedge against the 

possibility of future losses, the agency has established reserves that are 

based on risk ratings for the investment funds. These reserves totaled

$269 million in fiscal year 1999. 

Agency Comments and 

Our Response

We received written comments on a draft of this report from the Overseas 

Private Investment Corporation (OPIC), which are reprinted in 

appendix IV. In addition to their overall comments, the agency provided us 

with technical comments, which we incorporated as appropriate.

The agency characterized the report as a careful and complete review of a 

complex program. OPIC also used the letter as an opportunity to assert that 

the investment funds portfolio is sound and that the agency has made 

several important improvements to the program since 1998. The points that 

OPIC highlighted regarding the financial standing of the portfolio are their 

own interpretation of our analysis. We noted that the financial performance 

of the funds has been mixed, and drew no conclusions about the overall 

health of the investment funds portfolio. Further, while we agree that OPIC 

has taken steps to improve the operation of the program, we did not assess 

the effectiveness of these changes since only one fund has been approved 

under the new procedures.

Briefing Section I provides an overview of the Overseas Private Investment 

Corporation’s investment funds program. Briefing Section II discusses the 

investment funds selection process. Briefing Section III discusses the 

investment fund manager selection process. Briefing Section IV discusses 

the financial standing and performance of the investment funds. 

Appendix III contains a detailed description of our scope and methodology.
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We recently briefed your staff on the results of this analysis; this report 

summarizes the content of those briefings.

We are sending copies of this report to Mr. George Munoz, President and 

Chief Executive Officer, OPIC; and interested congressional committees. 

Copies will be made to other interested parties upon request.

If you or your staff have any questions about this report, please contact me 

at (202) 512-4128. An additional GAO contact and staff acknowledgments 

are listed in appendix V.

Susan S. Westin, Associate Director

International Relations and Trade Issues
Page 8 GAO/NSIAD-00-159BR Overseas Investment

Briefing Section I

Overview BBreinfrenigSfgeoctionnIs

Source: GAO from Overseas Private Investment Corporation data.

Dates OPIC Approved Funds

1987 1991 1993 1994 1995 1996 1997 1998 1999 2000

•Africa Growth 

•Asia Pacific Growth 

•Global Environment 

 Emerging Markets I

•Israel Growth 

•Poland Partners

•Russia Partners

•Agribusiness Partners International

•AIG-Brunswick Millennium

•Bancroft Eastern Europe

•Emerging Europe

•Allied Capital International

 Small Business 

•India Private Equity

•New Century Capital Partners

•Pioneer BancOne Property 

•South America Private

 Equity Growth 

•Aqua International Partners

•Asia Development Partners

•Draper International India

•Global Environment 

 Emerging Markets II

•InterArab Investment

•New Africa Opportunity

•Newbridge Andean Partners

•Modern Africa Growth 

 and Investment

•West Bank/Gaza and Jordan

•Caucasus

•Southeast Europe

 (proposed)

•Maritime Industries 

 and Services

 (proposed)

•New Africa Infrastructure

Improvement Plan Implemented
Briefing Section I

Overview

Page 9 GAO/NSIAD-00-159BR Overseas Investment

The Overseas Private Investment Corporation (OPIC) approved the first 

investment fund in 1987. Sixteen of the 26 funds currently in operation 

were approved during 1994-96.1

 Agency officials said that the proliferation 

of funds during this period was directly related to global events. For 

example, the dissolution of the Soviet Union created a demand for private 

capital in economies transitioning from a state-led economy to a free 

market economy. Other agencies and organizations that support 

investment funds, such as the U.S. Agency for International Development, 

the European Bank for Reconstruction and Development, and the 

International Finance Corporation, experienced a similar increase in the 

number of funds approved during approximately the same time period. 

In early 1998, OPIC began to implement a plan for improving the 

investment funds program to ensure that investment fund procedures were 

more clearly defined and consistently applied. One fund has been approved 

under these new procedures, and two funds have been proposed and are in 

the process of being approved. 

1

 One fund, the First Newly Independent States Regional Fund, repaid its OPIC-guarantied 

loan in 1999 and is no longer operating as an OPIC-supported fund.
Briefing Section I

Overview

Page 10 GAO/NSIAD-00-159BR Overseas Investment

Legend

NIS = Newly independent states of the former Soviet Union

SE = Southeastern

Source: GAO from Overseas Private Investment Corporation data.

Regions and Fund Size (Dollars in millions)

South America- $340

•South America Private Equity Growth ($180)

•Newbridge Andean Partners ($160)

Africa- $611

•New Africa Infrastructure ($350)

•Modern Africa Growth ($116)

•New Africa Opportunity ($120)

•Africa Growth ($25)

Middle East- $145

•West Bank/Gaza & Jordan ($60)

•InterArab Investment ($45)

•Israel Growth ($40)

Asia- $225

•Asia Development Partners ($150)

•Asia Pacific Growth ($75)

NIS/Russia- $881

•AIG-Brunswick Millenium ($289)

•New Century Capital Partners ($250)

•Russia Partners ($155)

•Agribusiness Partners International ($95)

•Caucasus ($92)

Central/Eastern/SE Europe- $459

•Pioneer BancOne Property ($240)

•Bancroft Eastern Europe ($95)

•Poland Partners ($64)

•Emerging Europe ($60)

•Southeast Europe (proposed)

Global- $445

•Aqua International Partners ($238)

•Global Environment Emerging Markets II ($120)

•Global Environment Emerging Markets I ($67)

•Allied International Capital Small Business ($20)

•Maritime Industries and Services (proposed)

India- $195

•India Private Equity ($140)

•Draper International ($55)
Briefing Section I

Overview

Page 11 GAO/NSIAD-00-159BR Overseas Investment

The agency reported that OPIC-supported funds have invested in over

40 countries. Most funds invest in several countries within a designated 

region in order to limit exposure in any single country. However, OPIC has 

approved five country-specific funds that invest in single countries where 

the agency has determined there is sufficient need for capital and an 

acceptable level of risk. These include Draper International, India Private 

Equity, Israel Growth, Poland Partners, and Russia Partners. Additionally, 

OPIC has approved four global funds (that is, funds that can invest in any 

country eligible for OPIC programs) that invest in specific sectors such as 

water treatment and environment-related projects. 

The average size of the 26 operating funds is about $127 million. The 

smallest fund is the $20 million Allied Capital International Small Business 

fund, and the largest is the $350 million New Africa Infrastructure fund. 

OPIC’s greatest exposure, based on total capital committed to any one 

region, is in Russia and the newly independent states of the former Soviet 

Union where the total size of all funds operating in the region is 

$881 million.

The number of funds operating in any one region ranges from two to five. 

Agency officials stated that because of the high demand for capital in 

developing countries, there is no competition for investment opportunities 

between investment funds operating in the same region. The fund 

managers and industry experts we interviewed agreed that competition 

between emerging market investment funds is generally not a problem.
Briefing Section I

Overview

Page 12 GAO/NSIAD-00-159BR Overseas Investment

Source: GAO from Overseas Private Investment Corporation data.

Types of Investments

Infrastructure

17%

Financial 

services

15%

Natural 

resources

4%

Communications

13%

Other

4%

Manufacturing

26%

Services

21%

$1.6 billion invested in 317 companies

(as of December 31, 1999)
Briefing Section I

Overview

Page 13 GAO/NSIAD-00-159BR Overseas Investment

OPIC-supported funds had invested about $1.6 billion in 317 overseas 

companies as of December 31, 1999. The funds invest in a variety of 

companies and sectors. For example, fund investments in the 

infrastructure sector include power, construction, and transportation 

businesses. The largest percentage of investments is in the manufacturing 

sector, which includes 26 percent, or about $428 million, of all investments. 

Examples of investments in the manufacturing sector include businesses 

involved in the production of high-technology electronic components, 

pharmaceuticals, and paper manufacturing.

OPIC requires fund managers to submit each proposed fund investment for 

review by the agency to ensure that the investments will not have an 

adverse impact on the U.S. economy, environment, workers’ rights, or 

human rights. Further, OPIC requires fund investments to be diversified to 

limit risk. For example, the agency’s general guidelines state that a fund 

may not commit more than 15 percent of available capital to any single 

company, nor commit more than 33 percent of available capital to any 

single business sector (unless the fund is created to invest in a specific 

sector). 
Briefing Section I

Overview

Page 14 GAO/NSIAD-00-159BR Overseas Investment

Source: GAO from Overseas Private Investment Corporation data.

Fund Structure

FUND

$3

FUND

$3

OPIC loan

guaranty

 Lender $2

Guarantied loan

Private investors

$1 Equity

investment

Foreign company A

$1 Investment

Foreign company B

$1 Investment

Foreign company C

$1 Investment
Briefing Section I

Overview

Page 15 GAO/NSIAD-00-159BR Overseas Investment

OPIC-supported investment funds combine OPIC-guarantied loans and 

private investor equity. OPIC stated that the loan guaranties are necessary 

to encourage private sector investment in developing countries. The fund 

managers we interviewed said that the OPIC guaranty was an important 

factor in their decision to establish an investment fund. 

Although the amount of the loan guaranty varies among funds, the agency’s 

general policy is that OPIC’s commitment shall not exceed two-thirds of the 

fund’s total capital. In other words, a fund should have no more than $2 of 

OPIC debt for every $1 of private equity. According to OPIC, funds 

operating in countries or sectors with a relatively higher level of risk may 

require a higher level of OPIC commitment to provide sufficient incentive 

for private sector investment. Conversely, OPIC officials noted that some 

funds require a lower amount of OPIC loan guaranty in cases where 

country or sector risk is lower, or where there is a higher amount of private 

investor capital for the fund. The average ratio of OPIC debt to investor 

equity for the 26 operating investment funds is $2.40 of OPIC debt to $1 of 

private investor equity. 

In this simplified example, a $3 investment fund consists of $2 of

OPIC-guarantied debt and $1 of private investor equity. Once the fund has 

been capitalized, it makes investments in foreign companies, subject to 

OPIC review and approval.
Briefing Section I

Overview

Page 16 GAO/NSIAD-00-159BR Overseas Investment

Source: GAO from Overseas Private Investment Corporation data.

Repayment Priority and Profit

Distribution

Investors

OPIC

Fund 

manager

FUND FUND

Foreign company A

Foreign company B

Foreign company C

Fund invests in foreign companies

Fund exits investments in

foreign companies

First priority:

 Repay loan, interest, and fees

Next priority:

 Return equity to private investors

Last priority:

Disburse remaining profits
Briefing Section I

Overview

Page 17 GAO/NSIAD-00-159BR Overseas Investment

The terms for repayment of OPIC-guarantied debt and disbursement of 

profits are defined by a formal contractual agreement between OPIC and 

the fund manager. Although the specific terms of the contract vary among 

funds, the contract generally requires the fund to repay all principal, 

interest, and fees associated with the OPIC loan guaranty before returning 

equity to private investors or disbursing profits. OPIC asserts that this 

payment priority limits OPIC’s risk because private investor equity is at risk 

before the OPIC guaranty. For example, if a fund were comprised of 

two-thirds OPIC debt and one-third private equity, it would have to lose 

more than one-third of its total capital before OPIC would be required to 

make payments on the guaranty. OPIC noted that, to date, the agency has 

not incurred a loss on an investment fund.

After the fund has repaid all principal, interest, and fees and has returned 

equity to its private investors, the fund may distribute any remaining 

profits. The contract between OPIC and the fund manager also defines how 

any profits will be distributed among OPIC, investors, and the fund 

manager. Although the percentages vary for each fund, OPIC generally 

receives between 4 and 6 percent of the profits, the fund manager receives 

about 20 percent, and the remaining portion is distributed to the private 

investors.
Briefing Section I

Overview

Page 18 GAO/NSIAD-00-159BR Overseas Investment

Source: GAO from Overseas Private Investment Corporation data.

Steps in Creating OPIC-supported

Investment Funds

Fund invests in foreign

companies

Fund invests in foreign

companies

Identify and approve fund

concept

Identify and approve fund

concept

Select fund manager Select fund manager

Board review and

approval

Board review and

approval

OPIC negotiates terms with

fund manager

OPIC negotiates terms with

fund manager

Fund manager raises private

equity and proposes investments

Fund manager raises private

equity and proposes investments

OPIC reviews proposed

investments

OPIC reviews proposed

investments

Fund is capitalized Fund is capitalized

OPIC

monitors

funds
Briefing Section I

Overview

Page 19 GAO/NSIAD-00-159BR Overseas Investment

OPIC’s policy is to identify and approve fund concepts that support the 

agency’s U.S. foreign policy and free market development objectives. 

According to OPIC, specific fund concepts originate from various sources, 

including OPIC staff, foreign policy initiatives, and the private sector. 

After a fund concept is approved, OPIC evaluates and selects a private 

sector fund manager. In general, OPIC evaluates potential fund managers 

on the basis of experience and proven success within the investment fund 

or related industry.

Pending approval of the fund concept and fund manager from the agency’s 

15-member, Senate-approved Board of Directors, OPIC negotiates a 

contract with the fund manager. The contract includes terms and 

conditions such as the amount of OPIC financing available to the fund, 

financial reporting requirements, and repayment and profit distribution 

guidelines. The fund manager then obtains equity commitments from 

private investors and proposes investments to OPIC, which the agency 

reviews to ensure compliance with the terms of the contract. 

Lastly, the fund is capitalized with private investor equity and 

OPIC-supported debt and begins to invest. The agency monitors ongoing 

fund operations to determine financial performance and to ensure that the 

fund’s investments do not adversely impact the U.S. economy, 

environment, workers’ rights, or human rights. OPIC’s monitoring activities 

include periodic financial analyses of a fund’s investments, site visits to the 

foreign companies in which the fund has invested, and serving as a 

nonvoting member of the fund’s governing bodies.
Page 20 GAO/NSIAD-00-159BR Overseas Investment

Briefing Section II

OPIC’s Fund Concept Selection Process BerinfgSecotinI

Source: GAO from Overseas Private Investment Corporation data.

OPIC’s Past and Present Fund

Concept Selection Process

Pre-1998 process

• Three main sources of fund concepts:

-OPIC identifies need

-Foreign policy initiative

-Unsolicited proposal from 

 prospective fund manager

• Reviewed fund concept to determine if

proposed fund is consistent with OPIC

objectives

• Validated need and support for fund

concept through feasibility studies, site

visits, and consultation with the private

sector

Post-1998 process

• OPIC will not approve fund concepts based

on unsolicited proposals without soliciting

competing proposals from prospective fund

managers

• Other elements of the process remain the

same
Briefing Section II

OPIC’s Fund Concept Selection Process

Page 21 GAO/NSIAD-00-159BR Overseas Investment

OPIC has identified and approved investment fund concepts through three 

different mechanisms. First, the agency has identified the need for funds in 

specific regions or sectors. Second, funds have been created in response to 

administration or congressional foreign policy initiatives. For example, the 

Caucasus Fund was created in response to 1996 legislation (P.L. 104-107) 

mandating the establishment of a Trans-Caucasus Enterprise Fund. Third, 

prior to its investment fund improvement plan implemented in 1998, the 

agency created several funds based on unsolicited proposals received from 

prospective fund managers seeking to establish an OPIC-supported 

investment fund. We reviewed OPIC internal reports, correspondence, and 

other relevant documents for the 26 operating investment funds. We 

determined that 5 fund concepts were identified by OPIC, 10 fund concepts 

were created in response to foreign policy initiatives, and 10 fund concepts 

were originated based on unsolicited proposals. We were unable to identify 

the origin of one fund concept. See appendix I for the detailed results of 

our review.

Once a fund concept is identified, OPIC executive staff review the concept 

to determine if the proposed fund is consistent with OPIC program 

objectives. Additionally, OPIC conducts inquiries with the private sector to 

ascertain investor support for a given fund concept and may conduct 

feasibility studies and site visits to validate the need for a fund. 

As part of the improvement plan implemented in 1998, OPIC resolved to no 

longer approve fund concepts originating from unsolicited proposals 

without soliciting competing proposals from prospective fund managers. 

The policy change was intended to ensure that the opportunity to manage 

an OPIC-supported investment fund was made available to a wide range of 

candidates.
Page 22 GAO/NSIAD-00-159BR Overseas Investment

Briefing Section III

OPIC’s Fund Manager Selection Process BrenifgSecotinI

Source: GAO from Overseas Private Investment Corporation data.

OPIC’s Past and Present Fund

Manager Selection Process

Post-1998 process

• Solicit competing proposals for all funds

by issuing a public call for proposals

• Established an interdepartmental

Evaluation Committee to review all

proposals and recommend a prospective

fund manager for approval by OPIC’s

Board of Directors

• OPIC uses same criteria to evaluate fund

manager qualifications

Pre-1998 process

• Solicited competing fund manager

 proposals or reviewed and approved

unsolicited proposals

• Evaluated fund manager qualifications

 based on

 -Prior experience and performance

 -Ability to raise capital

 -Geographic and sector knowledge

 -Ability to assemble host-country

 management teams
Briefing Section III

OPIC’s Fund Manager Selection Process

Page 23 GAO/NSIAD-00-159BR Overseas Investment

Since the inception of the investment funds program, OPIC’s policy has 

been to evaluate potential fund managers based on (1) previous private 

equity investment experience, (2) ability to raise capital from investors,

(3) geographic and industry knowledge of the areas targeted in the fund 

concept, and (4) ability to assemble management teams in the host 

countries where the proposed fund will invest. OPIC’s evaluation of fund 

managers’ qualifications includes a review of credit references, personal 

history, and performance record managing other private equity funds or 

related investment projects.

Prior to 1998, the agency selected some fund managers through a 

competitive process, while other fund managers were selected after OPIC 

evaluated and approved an unsolicited proposal. However, OPIC officials 

stated that the criteria for evaluating the fund managers’ qualifications 

were the same under both processes. 

OPIC revised the procedures for selecting fund managers in 1998 to 

establish a transparent and competitive selection process. Under the 

revised procedures, OPIC posts a call for proposals on the agency’s website 

and advertises it in business and trade publications. Prospective fund 

managers submit a detailed business plan that is then reviewed by an 

interdepartmental Evaluation Committee, an Investment Committee, and 

OPIC’s Board of Directors.

We reviewed OPIC’s internal reports, correspondence, and other relevant 

documents for the 26 operating investment funds and determined that 

14 fund managers were not selected through a competitive process; the 

remaining 12 fund managers were selected after the agency had solicited or 

considered other proposals. OPIC officials acknowledged that, prior to 

1998, it was not the agency’s policy to solicit competing fund manager 

proposals for each fund. See appendix II for the results of our review.
Page 24 GAO/NSIAD-00-159BR Overseas Investment

Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance BrenifgSecotinIV

Note: Data as of December 31, 1999.

Source: GAO from Overseas Private Investment Corporation data.

Status of OPIC Loan Guaranties

OPIC loan guaranties

$2.33 billion

OPIC loan guaranties

$2.33 billion

Undisbursed

 $1.07 billion

Undisbursed

 $1.07 billion

Disbursed

$1.26 billion

Disbursed

$1.26 billion

Repaid

$0.13 billion Repaid

$0.13 billion

Outstanding

$1.13 billion

Outstanding

$1.13 billion
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 25 GAO/NSIAD-00-159BR Overseas Investment

OPIC has committed $2.33 billion in loan guaranties to support investment 

funds. However, only about one-half of these guarantied loans had been 

disbursed to fund managers as of December 31, 1999. Because repayment 

of the principal and interest on OPIC-guarantied debt is typically deferred 

until a fund is liquidated, only $127 million of the principal had been repaid 

as of that date.1

 The outstanding principal on OPIC-guarantied loans was 

about $1.13 billion at the end of calendar year 1999.

1

The funds have varying maturity dates ranging from the year 2004 to the year 2011. 

However, about two-thirds of the funds will not mature for at least 5 years.
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 26 GAO/NSIAD-00-159BR Overseas Investment

Legend

C = Central

E = Eastern

NIS = Newly independent states of the former Soviet Union

SE = Southeastern

Note: OPIC data reflect the weighted average annual rate of return for 44 liquidated and 267 

unrealized investments through March 31, 2000. The weighted averages are based on the cost of a 

fund’s individual investments relative to the total cost of OPIC-supported investments. Estimated 

annual returns may not predict the funds’ future performance.

Source: GAO from Overseas Private Investment Corporation data.

Estimated Average Annual Return

by Region for 311 Investments

19.6% 19.6%

3.9%

-0.2%

2.9%

12.4%

15.7%

-0.1%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Africa (3 funds)

Asia (2 funds)

C/E/SE Europe (3 funds)

Global (4 funds)

India (2 funds)

Mid-East (2 funds)

NIS/Russia (5 funds)

South America (2 funds)
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 27 GAO/NSIAD-00-159BR Overseas Investment

Assessing the financial performance of OPIC investment funds in 

midstream is difficult, as the funds typically have 10- to 12-year life spans, 

and returns are realized mostly late in a fund’s life or at final liquidation. 

Although OPIC indicated that fund managers generally expect to achieve a 

final return of at least 20 percent, it is recognized within the industry that it 

takes several years for investment funds with long intended life spans to 

realize positive returns. Given that OPIC funds are still in the early stages of 

investing—the average age of the investment funds is about 5 years—it is 

especially difficult to draw strong conclusions about future investment 

performance. Additionally, interim returns do not predict the future 

financial performance of funds, since the investment valuations apply only 

to a specific point in time. 

OPIC provided performance data to us on the estimated value of unrealized 

investments and the value of liquidated investments as reported by fund 

managers.2

 Based on this combined data, the financial performance of 

OPIC-supported funds appears mixed. Overall, 13 of the funds showed a 

positive annual average return, while 10 showed either a zero (4 funds) or 

negative (6 funds) annual average return. There were disparities in the 

annual average returns of funds in different regions as well as funds within 

a region. For example, the estimated annual average return of the three 

operating Africa funds ranged from about negative 1 percent to a positive 

533 percent. Significant disparities were also evident in the average annual 

returns among OPIC funds within other regions and sectors.

2

Fund managers’ estimates of the value of unrealized investments are not reported in 

accordance with U.S. Generally Accepted Accounting Principles. According to OPIC, under 

these principles, about 80 percent to 90 percent of the funds’ investments would have been 

valued at cost. 
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 28 GAO/NSIAD-00-159BR Overseas Investment

Note: OPIC data reflect the results for 44 liquidated investments through February 29, 2000. Results 

may not accurately predict the funds’ future performance.

Source: GAO from Overseas Private Investment Corporation data. 

7 investments 

sold at cost

6 investments 

sold at a loss

31 investments 

sold at a gain

Results for 44 Liquidated Investments
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 29 GAO/NSIAD-00-159BR Overseas Investment

We also separately examined the results for 44 liquidated investments, 

which represent about 9 percent of the funds’ total investments. Returns on 

these 44 fully liquidated investments were mixed, as almost one-third of the 

investments were sold either at a loss or at cost and two-thirds were sold at 

a gain. Within the industry, it is generally recognized that investment 

failures tend to be liquidated earlier in the life cycle of a fund than 

potentially profitable investments would be.
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 30 GAO/NSIAD-00-159BR Overseas Investment

Legend

Problemless = Fund demonstrates high degree of financial stability. 

Program standard = Fund meets at least the minimum standards of creditworthiness (ability to repay 

the loan).

Program standard: watchlist = Fund has potential weaknesses that if left uncorrected could result in a 

deterioration of the repayment prospects of the loan.

Substandard = Fund exhibits weaknesses that jeopardize timely repayment of the loan.

Workout: recoverable = Fund demonstrates weaknesses that make repayment of the loan doubtful but 

not improbable.

Workout: doubtful = Fund has characteristics that make repayment of the loan unlikely.

Loss = Loan is considered uncollectible.

Note: OPIC had assigned risk ratings to 23 of 26 funds as of September 30, 1999. The three funds that 

were not rated had not drawn down any OPIC-guarantied debt.

Source: GAO from Overseas Private Investment Corporation data.

Investment Fund Risk Ratings

0 funds

1fund

1 fund

3 funds

2 funds

10 funds

6 funds

Loss

Workout: doubtful

Workout: recoverable

Substandard

Program standard: watchlist

Program standard

Problemless

Passing rating Criticized rating
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 31 GAO/NSIAD-00-159BR Overseas Investment

OPIC uses seven risk ratings to categorize outstanding fund loans—two 

representing passing ratings and five representing criticized ratings (that is, 

ratings that reflect concerns about the repayment prospects of the loan). To 

determine a risk rating for each fund, OPIC reviews its cash flow, asset 

coverage, investment strategy, management and financial controls, market 

conditions, and country risk. OPIC officials indicated that country risk— 

which reflects a country’s macroeconomic environment, political, and 

social constraints; foreign debt service burden; and access to foreign 

exchange—is the most important factor in determining a risk rating for 

funds that are in the early stages of the investment cycle. 

OPIC reviews fund risk ratings quarterly or more frequently as events 

dictate. As of September 30, 1999, 16 of 23 funds that had drawn down 

OPIC-guarantied loans had passing ratings, indicating that they at least had 

a minimum ability to repay the loan. The seven remaining funds had risk 

ratings that reflected concerns about the repayment prospects of the loan. 

Agency officials indicated that most of these concerns were related to the 

potential impact of host-country macroeconomic factors on the funds’ 

investments. However, no funds were rated as “loss.” 

To cushion against potential future losses, OPIC establishes reserves based 

on a fund’s risk rating. The reserves are based in part on OPIC’s assessment 

of country and sector risks and the potential impacts of these risks on the 

funds’ investments. For a fund with a passing rating, OPIC generally sets 

aside reserves equaling 1.5 percent to 3 percent of the fund’s outstanding 

loans and accrued interest, and reserves from 6 percent through 

100 percent of outstanding loans and interest for funds with criticized 

ratings.3

 According to OPIC officials, the average reserve level for the funds 

is approximately 15 percent and totaled $269 million in fiscal year 1999.

3

OPIC sets aside an additional reserve of 0.5 percent of the undisbursed loan amount for all 

funds.
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 32 GAO/NSIAD-00-159BR Overseas Investment

Note: Data reflect OPIC’s estimates of U.S. and host-country benefits for operating OPIC-supported 

funds through September 30, 1999.

Source: Overseas Private Investment Corporation.

OPIC’s Estimates of U.S. and Hostcountry Investment Benefits

U.S. exports generated $2.7 billion

U.S. jobs created 8,251

Host-country revenues $0.6 billion

Host-country jobs created 34,190
Briefing Section IV

OPIC’s Investment Funds Financial Standing 

and Performance

Page 33 GAO/NSIAD-00-159BR Overseas Investment

According to OPIC, the investment funds program (1) strengthens the U.S. 

economy and enhances the competitiveness of U.S. businesses and

(2) promotes social and economic development in developing countries 

and regions in a manner that complements U.S. policy objectives. In terms 

of host-country benefits, OPIC estimates that the funds had created about 

34,000 host-country jobs and generated over $600 million in host-country 

revenue through September 30, 1999. U.S. and host-country effects are 

based on estimates provided to OPIC by fund managers. Based on OPIC’s 

in-country monitoring of selected investment projects, agency officials 

reported that fund managers’ estimates of economic and social benefits are 

reasonably accurate.4

 OPIC also estimates that the operating funds had 

generated almost $2.7 billion in U.S. exports and over 8,200 U.S. jobs. 

However, as reported in our prior work, economists and policymakers 

recognize that U.S. employment levels are substantially influenced by 

macroeconomic policies, including actions of the Federal Reserve.5

 At the 

national level, under conditions of full employment, government export 

finance assistance programs may largely shift production among sectors of 

the economy rather than raise overall employment levels.

Additionally, OPIC notes that the investment funds program contributes to 

the development of emerging markets by stimulating non-OPIC supported 

investment. For example, OPIC fund managers are currently operating or 

raising private equity for 12 non-OPIC supported funds in emerging 

countries.

4

OPIC staff have visited 52 investment project sites since the beginning of fiscal year 1997 

and plan to visit at least 3 additional project sites during the remainder of fiscal 

year 2000.

5

See Export-Import Bank: Key Factors in Considering Eximbank Reauthorization

(GAO/T-NSIAD-97-215, July 17, 1997). 
Page 34 GAO/NSIAD-00-159BR Overseas Investment

Appendix I

Results of GAO Review to Determine Origin of Apendxies

Investment Fund Concepts ApendxiI

Fund Concepts 

Identified by the 

Overseas Private 

Investment 

Corporation

New Africa Opportunity

New Century Capital Partners

Newbridge Andean Partners

Pioneer BancOne Property

South America Private Equity Growth

Fund Concepts 

Created in Response to 

Foreign Policy 

Objectives

Africa Growth

AIG-Brunswick Millenium

Asia Pacific Growth

Caucasus

InterArab Investment

Israel Growth

Modern Africa Growth

New Africa Infrastructure

Poland Partners

West Bank/Gaza & Jordan

Fund Concepts Based 

on Unsolicited 

Proposals

Allied International Capital Small Business

Aqua International Partners

Asia Development Partners

Bancroft Eastern Europe

Draper International

Emerging Europe 

Global Environment Emerging Markets I

Global Environment Emerging Markets II

India Private Equity

Russia Partners

Origin of Fund Concept 

Unclear

Agribusiness Partners International
Page 35 GAO/NSIAD-00-159BR Overseas Investment

Appendix II

Results of GAO Review to Determine Fund 

Manager Selection Process ApendxiI

Evidence That OPIC 

Solicited or Considered 

Other Fund Manager 

Proposals

Africa Growth

AIG-Brunswick Millenium

Asia Pacific Growth

Caucasus

InterArab Investment

Israel Growth

Modern Africa Growth

New Africa Infrastructure

New Africa Opportunity

New Century Capital Partners

Pioneer BancOne Property

West Bank/Gaza & Jordan

No Evidence That 

OPIC Solicited or 

Considered Other Fund 

Manager Proposals 

Agribusiness Partners International

Allied International Capital Small Business

Aqua International Partners

Asia Development Partners

Bancroft Eastern Europe

Draper International

Emerging Europe 

Global Environment Emerging Markets I

Global Environment Emerging Markets II

India Private Equity

Poland Partners

Russia Partners

South America Private Equity Growth

Fund Manager 

Selection Process 

Unclear

Newbridge Andean Partners
Page 36 GAO/NSIAD-00-159BR Overseas Investment

Appendix III

Objectives, Scope, and Methodology ApendxiI

The Senate Committee on Appropriations directed us to review the 

Overseas Private Investment Corporation’s progress in improving the 

management of the investment funds program. In conducting this work, we 

examined how the agency (1) identifies and approves investment fund 

concepts and (2) selects fund managers. In addition, we provided 

information on the funds’ performance to date and risk levels assigned to 

the funds.

To identify how the Overseas Private Investment Corporation reviews and 

selects investment fund concepts and fund managers, we reviewed the 

agency’s current and previous operational guidelines as well as internal 

reports, which examined investment fund operations and made several 

recommendations for improving investment fund selection procedures that 

OPIC subsequently adopted. We also interviewed OPIC officials, including 

its President and Chief Executive Officer, to discuss the series of 

improvements launched in 1998 to ensure that the fund concept and fund 

manager selection procedures were more clearly defined and consistently 

applied. 

To determine (1) how the agency identified and selected the 26 fund 

concepts; (2) how many of the fund managers were selected through a 

competitive process; and (3) whether OPIC systematically collected 

information regarding these fund managers’ experience and qualifications, 

we reviewed relevant documents included in each fund’s project folder, 

including fund proposals, investment committee papers, board of director’s 

papers, annual reports, fund manager qualification statements, and 

correspondence between OPIC and the fund manager.

To gain additional perspectives on the investment funds program and the 

recent operational improvements, we interviewed managers of five 

OPIC-supported investment funds located in New York City and Durham, 

North Carolina. We also interviewed several other industry experts not 

affiliated with the Overseas Private Investment Corporation, including 

officials from the U.S. Agency for International Development; the European 

Bank for Reconstruction and Development; and the International Finance 

Corporation, a member of the World Bank group. 

To identify how OPIC measures fund performance, we met with OPIC 

officials to determine what performance data the agency maintains for its 

investment funds program. We also obtained the agency’s most current 

estimated average annual return data for each fund. These data were based 
Appendix III

Objectives, Scope, and Methodology

Page 37 GAO/NSIAD-00-159BR Overseas Investment

on the value of liquidated investments and the current estimated value of 

unrealized investments as reported by the fund managers.

To gain additional insights into investment fund valuation issues, we 

reviewed several industry guides and reports that addressed measuring the 

performance of private-equity investment funds, including the European 

Venture Capital Association guidelines—which industry experts we 

interviewed consistently cited as the industry standard—and the 

International Finance Corporation’s Investment Funds in Emerging 

Markets: Lessons of Experience Series (1996). We also discussed 

investment fund performance issues, including the availability of 

comparative data, with managers of OPIC-supported funds; officials from 

the other development agencies; and other private industry groups, 

including the National Venture Capital Association headquartered in 

Arlington, Virginia.

We also reviewed OPIC’s process for assigning risk ratings and establishing 

reserves for its investment funds. Specifically, we interviewed senior 

agency officials and obtained documents detailing the fund risk rating 

process and defining the various risk ratings and associated reserve levels. 

We also obtained the risk rating and reserve level assigned to each fund as 

of September 30, 1999. Because agency-supported funds have economic 

and developmental objectives, we collected documentation regarding how 

the agency measures such impacts. We also obtained data that estimate the 

funds’ impact on U.S. employment and exports as well as host-country tax 

and customs revenues and employment. 

The fund performance data included in this report are not an accurate 

indicator of the future performance of the funds, because the underlying 

investment valuations apply only to a specific point in time. We did not 

independently assess the reliability of the performance data that OPIC 

provided. 

We conducted our work from February through April 2000 in accordance 

with generally accepted government auditing standards.
Page 38 GAO/NSIAD-00-159BR Overseas Investment

Appendix IV

Comments From the Overseas Private 

Investment Corporation ApendxiIV
Appendix IV

Comments From the Overseas Private 

Investment Corporation

Page 39 GAO/NSIAD-00-159BR Overseas Investment
Page 40 GAO/NSIAD-00-159BR Overseas Investment

Appendix V

GAO Contact and Staff Acknowledgments ApendxiV

GAO Contact Stephen M. Lord, (202) 512-4379

Acknowledgments In addition to the person named above, Carlos J. Evora, Matthew E. Helm, 

Rona H. Mendelsohn, and Mary E. Moutsos made key contributions to this 

report.

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