Investment Policy

Social Benefits

Gray Ghost explicitly considers social impact in evaluating investments. Specifically, we look at the fund itself, whether it can be responsive to its microfinance institution (MFI) clients, and through the fund to the underlying MFI investments.

Some of the factors we consider are weather the fund and the MFIs serve regions where access to capital for the poor is more limited; whether the fund serves smaller, less established MFIs that may serve new niches or develop new products and approaches; and whether the fund provides equity and can participate meaningfully in governance to help improve the quality of service, As well as maintain the MFI's core character and objectives.

Financial-Hurdle Rate

Gray Ghost estimates an appropriate financial rate of return for each investment in a microfinance fund by starting with a risk-free rate based on U.S. Treasuries. We then layer on premiums reflecting (i) the liquidity of the portfolio, (ii) the sovereign and foreign-exchange (FX) risk posed by the fund's investments and the degree to which that risk has been diversified across institutions or countries, and (iiii) the business risk associated with the operating environment and the specific MFIs.

Double Bottom Line Return

In developing a return target that effectively considers both the social and financial return prospects, Gray Ghost adds to a fund's estimated financial return a quantification of social returns up to a maximum of six percentage points.

The result is a blended or "double bottom line" return that can be compared accurately with other funds and with a risk-adjusted hurdle rate. An estimated blended return exceeding the hurdle rate is an important consideration in our assessment of possible investments.