Ceniarth, the single-family office of Diane Isenberg, is focused on funding enterprises and intermediaries delivering products, services and support that reach marginalized, primarily rural, populations. As an impact-first investor, Ceniarth deploys low cost capital in markets where more commercial returns are not feasible. While operating with a more modest return expectation, Ceniarth is focused on capital preservation, underwriting investments to a risk standard of returning capital from all investments. The organization also provides programmatic funding to support high-risk projects and pooled interventions such as early stage pilots to support market building.

Ceniarth has invested in 29 blended finance deals with an average investment size of USD 2-5 million. As Ceniarth is one of the few family offices in the global blended finance market, we connected with Greg Neichin, Director of Ceniarth, to learn more about their impact investing approach and what makes blended finance an attractive tool to build their investment portfolio and meet their impact objectives.

As an asset owner, why does Ceniarth find it valuable to engage in blended finance?

Blended finance is the most valuable tool that we have to increase the scale of our impact as a stand-alone family office. Ceniarth manages approximately USD 450 million to advance sustainable development that reaches marginalized, primarily rural, populations. It is a small amount of money in comparison to the scale of the challenges at hand affecting global poverty, racial and social injustice, and climate change. However, blended finance allows us to achieve significant leverage from our commitments by incentivizing others, such as development finance institutions (DFIs), foundations, and impact investors, to participate in below market-rate transactions to increase the investments towards SDG related projects in developing countries.

From Ceniarth’s original three investment approaches, one of which was a more traditional market-rate impact mandate, the firm is now focused on impact-first investments and supporting higher risk projects and pooled interventions. What inspired this decision, and how does blended finance enable this?

When Ceniarth launched 8 years ago, Diane Isenberg, our founder, was steadfast in wanting our capital to have a demonstrative impact on the people living in rural poverty but was open-minded as to how we went about this. As a result, Ceniarth built a portfolio with a wide range of impact investing modalities from more conventional public equity and private equity commitments to our higher risk Program Related Investment (PRI) offerings.

Over time, we saw our conventional impact investments do well financially. But, when we asked ourselves, “Are we doing the most we can with our capital?” we realized there was more we could do to increase investment into vulnerable communities. Similarly, our PRI making was highly impactful in delivering pilot loans to early stage enterprises in developing economies, but it came with significant risks of capital impairment, which conflicted with one of our objectives, which is to recycle most of our money over time.

We found that our most successful impact-first investments fell between the ends of this continuum. This includes funds and enterprises that have lower risk profiles but need a lower cost of capital. For example, we have a USD 5 million investment in MCE Social Capital, a non-profit impact investment fund that focuses on lending to high impact microfinance institutions and small, growing social enterprises. MCE has a long track record of successfully returning capital to investors but does require a below-market cost of capital to on-lend at reasonable rates.

So, we are in the process of transitioning our portfolio towards 100% impact orientation. Our experience has told us we can be impact-first while earning modest returns and being catalytic, using blended finance to incentivize other public and private investors to participate in transactions by leveraging our investment. We aim to continue to deliver capital at a cost that allows fund managers and enterprises to stay focused on the most underserved communities without feeling pressured to drift up-market.

Ceniarth has participated in large and small deals, ranging from USD 4 million to upwards of USD 200 million in blended finance. What are some lessons and insights gained from participating in transactions that vary in size?

For investors, irrespective of deal size, transactions tend to take the same amount of effort for monitoring and underwriting a deal. This is a big reason why Ceniarth deploys much of its capital via funds and intermediaries. It would be inefficient for us to try and build a substantial book of smaller, direct loans to enterprises. We do this to some degree for the learning value and because capital is so scarce for pilot debt, but it is a sub-optimal approach. In general, our sweet spot is supporting impact fund managers with their earliest funds or supporting niche managers with specialized mandates. Our check size can be meaningful and catalytic for a fund trying to raise USD 20-100 million but is less valuable for more established managers seeking to close funds much larger than that.

Ceniarth has deployed millions into gender-focused investments. How does Ceniarth identify a women-centered investment initiative? What are the big questions the team is exploring now when it comes to gender lens investing?

Given the gender dynamics in many of the regions we invest in, our mission to address rural livelihoods has become synonymous with investing in women; women as customers, entrepreneurs, service-providers, advocates, and decision-makers. Many of our investees have had an explicit emphasis on women, even before the field began labeling this activity as gender lens investing. For example, we have invested over USD 10 million with Global Partnerships, US-based non-profit impact investment firm, in large part because of their women-centered investment initiatives and impact assessment process. Our investments in Pro Mujer (USD 2 million of revolving credit), WaterEquity (Ceniarth invested USD 3 million in their newest fund), and Convergence design funding grantee, Women’s World Banking Capital Partners (Ceniarth invested USD 1 million in their first private equity fund), are based on their explicit focus on women as customers for financial services. These organizations existed before the market adopted the term gender lens.

One question we are now grappling with is how to balance a gender lens view knowing many of the poorest and most vulnerable women in the world live in some of the most conservative societies? Diane is outspoken about how the gender lens movement is taking an overly western centric view of what gender equality should look like today and raises how the westernization of gender equality is resulting in many investors allocating money to the less challenging gender lens opportunities – for example, investing in western companies with female leadership and board membership. On this front, Ceniarth is led with the viewpoint that the gender framework for poorer women in emerging markets will need to look different based on their respective social and cultural fabric. Just as there is finally an acknowledgement that patient capital is required more generally, practitioners in the field need to take a more patient and longer-term view on gender across developing markets.

I am also happy to share that Ceniarth recently partnered with Value 4 Women (V4W), an advisory firm specializing in bringing a gender lens to business practices. In the next few months, V4W will be working with our portfolio companies directly to offer guidance and assistance.

For Ceniarth, achieving a level of financial return is as important as creating lasting impact. Can you highlight the types of terms or arrangements that have allowed your capital to be more catalytic?

To clarify, recycling our capital and earning a modest financial return is very important to us in a transaction, but not necessearily generating a commercial level of return. We explicitly invest in opportunities where more mainstream, market-rate capital does not go. That said, typically, our capital is most catalytic when it takes a subordinate and/or first loss position that can be leveraged to attract senior lenders to a transaction. Depending on the perceived risk of an opportunity, Ceniarth can often attract senior lenders to a transaction at a 5:1 or even 10:1 ratio. For example, a USD 5 million subordinate investment (USD 3 million from Ceniarth) in Global Partnership’s most recent blended Impact-First Development Fund unlocked an additional USD 50 million from the U.S. International Development Finance Corporation. This type of leverage is on the high side, given Global Partnership’s strong historical performance, but a real example of how blended finance can be used to scale transactions.

Our pilot debt transactions, often deployed via our Foundation’s PRI pool, are also highly catalytic, given the amount of risk we shoulder that others cannot. These transactions provide capital to underserved enterprises and help them understand what types of financial forecasting and reporting are required to work with professional, sophisticated lenders. As these enterprises successfully repay us, they in turn build a track record that can be assessed by other lenders.

Ceniarth employs a unique model, what advice would you give to other family offices that are unsure about engaging in blended finance?

A few suggestions come to mind when I think about general family offices:

- Get clear on your driving cause. Know why you are approaching blended finance; is it with the interest to grow your impact investment portfolio or to channel your philanthropic endeavors? Knowing what you are trying to do with your capital will fair you well. - Start small. Find other practitioners who are taking more flexible positions in the capital stack and invest with them to get familiar with the market and what works for you. - Ask the additionality question. It is important to remember that your money must work to mobilize additional capital, so the question, “Is my capital getting leverage and/or bringing down the cost of capital?” must be asked early on. If your dollar is just a dollar in a deal, you should not be involved.

Finally, I encourage all family offices thinking about engaging in blended finance to come talk to us. It is not as hard as it may seem to be catalytic as a family office in the blended finance space, but only a handful of us are doing it. Ceniarth has spent years building its network with other investors, especially foundations and DFIs, that can support deals and help evaluate the best terms for impactful transactions targeting frontier and emerging markets. This year, we are focused in doing whatever we can to share our learnings and knowledge, so we are happy to speak to others that want to engage in blended finance.

How do you hope Convergence continues to support participants in blended finance and its member network?

Convergence does a commendable job at both highlighting transactions in the blended finance market and educating new impact investors on the strategies and tactics that are most effective in structuring and fundraising blended transactions. Currently, we see the most acute need in blended finance for more impact-first investors who are willing to take subordinate, catalytic positions. There is an encouraging amount of senior, development finance and other institutional capital waiting to be deployed if junior tranches can be fully funded. Continuing to identify new sources of first loss capital – most likely from foundations and family offices – is critical to the field. Convergence’s Deal Platform is particularly beneficial for offices that might not have a big in-house team searching for new investment opportunities. It also helps identify other international collaborators that are working on these types of deals (e.g., DFIs), and new interesting public sector vehicles. Ceniarth is very grateful to Convergence for highlighting these opportunities and potentially identifying new participants, and we encourage others seeking to get involved to think about employing such tools.

Are you interested in becoming a member of Convergence's global network for blended finance? Let us know!

By Namrata Narayan, former Communications Lead (Interim) at Convergence