Overseas Investment:

The Overseas Private Investment Corporation's Investment Funds Program

NSIAD-00-159BR: Published: May 9, 2000. Publicly Released: May 9, 2000.

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Benjamin F. Nelson
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Pursuant to a legislative requirement, GAO reviewed the Overseas Private Investment Corporation's (OPIC) progress in improving the management of its investment funds program, focusing on: (1) how OPIC identifies and approves investment fund concepts and selects fund managers; (2) the funds' performance to date; and (3) the risk levels assigned to the funds.

GAO noted that: (1) OPIC has identified and approved investment fund concepts through three different mechanisms: (a) OPIC has identified the need for funds in specific regions or sectors; (b) funds have been created in response to administration or congressional foreign policy initiatives; and (c) prior to its investment fund improvement plan implemented in 1998, OPIC created several funds based on unsolicited proposals received from the private sector; (2) under revised procedures adopted as part of its 1998 improvement plan, OPIC publicly solicits proposals from prospective private sector fund managers; (3) OPIC 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; (4) the four fund managers that GAO interviewed all indicated that OPIC completed a rigorous background examination of their experience and qualifications; (5) however, GAO 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; (6) the remaining 12 fund managers were selected after OPIC had solicited or considered other proposals; (7) OPIC officials acknowledged that, prior to 1998, it was not OPIC's policy to solicit competing fund manager proposals for each fund; (8) it is 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 half of the projected life span; (9) OPIC provided GAO with the fund managers' estimates of fund performance, which show that 13 funds presently have a positive return on investment while 10 funds show either a zero or negative annual average return (3 funds have not started investing); (10) these estimates cannot be used to predict the future performance of the funds, as they are only a snapshot of current performance; (11) according to OPIC, the one fund that is now close to fully liquidating its investments is expected to repay OPIC guarantied loan even though the final return of the fund cannot yet be determined; (12) 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; (13) the 7 remaining funds had risk ratings that reflected concerns about the repayment prospects of the loan; (14) however, no funds are rated as a loss; and (15) to hedge against the possibility of future losses, OPIC has established reserves that are based on risk ratings for the investment funds.

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