Harvard Case - Arcano Partners: Scaling Impact With a Fund of Funds (A)
"Arcano Partners: Scaling Impact With a Fund of Funds (A)" Harvard business case study is written by Nicolas Mo Umpierre, Fabrizio Ferraro. It deals with the challenges in the field of Strategy. The case study is 24 page(s) long and it was first published on : Apr 28, 2022
At Fern Fort University, we recommend that Arcano Partners focus on a strategic growth plan that leverages its core competencies in impact investing and fund management to expand its reach and impact. This plan should prioritize geographic diversification, particularly in emerging markets, while maintaining a focus on environmental sustainability and social impact. Arcano should also explore strategic alliances and mergers and acquisitions to accelerate its growth and access new markets and expertise.
2. Background
Arcano Partners is a leading impact investment firm focused on Latin America. They manage a fund of funds, investing in other impact-focused funds across various sectors. The case study highlights Arcano's success in building a strong reputation and generating impressive returns for its investors. However, Arcano faces the challenge of scaling its impact and reaching a wider audience while maintaining its commitment to sustainability and social responsibility.
The main protagonists of the case study are:
- Fernando Arango: Founder and CEO of Arcano Partners, a visionary leader with a deep understanding of the impact investing landscape.
- The Arcano Partners Team: A dedicated team of professionals with expertise in finance, impact investing, and fund management.
- Arcano's Investors: High-net-worth individuals and institutions seeking both financial returns and positive social and environmental impact.
3. Analysis of the Case Study
SWOT Analysis:
Strengths:
- Strong brand reputation: Arcano has established itself as a leading impact investment firm in Latin America.
- Experienced team: The team possesses deep expertise in finance, impact investing, and fund management.
- Proven track record: Arcano has a strong track record of generating both financial returns and positive social impact.
- Focus on emerging markets: Arcano has a deep understanding of the opportunities and challenges in emerging markets.
Weaknesses:
- Limited geographic reach: Arcano's focus on Latin America restricts its potential for growth.
- Limited resources: Arcano's relatively small size limits its ability to invest in large-scale projects.
- Competition: The impact investing space is becoming increasingly competitive.
Opportunities:
- Growing demand for impact investing: There is a growing demand for investments that generate both financial returns and positive social and environmental impact.
- Emerging markets: Emerging markets offer significant opportunities for impact investing, particularly in areas such as renewable energy, sustainable agriculture, and education.
- Technological advancements: New technologies are enabling more efficient and impactful investments.
Threats:
- Economic volatility: Economic downturns can negatively impact impact investing.
- Regulatory uncertainty: Changes in regulations can create uncertainty for impact investors.
- Competition from established players: Arcano faces competition from larger, more established impact investment firms.
Porter's Five Forces:
- Threat of new entrants: The impact investing space is becoming increasingly competitive, but barriers to entry remain relatively high due to the specialized knowledge and expertise required.
- Bargaining power of buyers: Investors have a high degree of bargaining power due to the availability of alternative impact investment options.
- Bargaining power of suppliers: The bargaining power of suppliers is moderate, as Arcano can diversify its investment portfolio across multiple funds.
- Threat of substitutes: There are limited substitutes for impact investments, as investors seeking both financial returns and positive social impact have few other options.
- Rivalry among existing competitors: Competition among impact investment firms is increasing, but it is generally characterized by a focus on collaboration and shared values.
Value Chain Analysis:
Arcano's value chain consists of the following key activities:
- Fund sourcing and selection: Identifying and evaluating potential impact funds based on their investment strategy, track record, and alignment with Arcano's values.
- Due diligence: Conducting thorough due diligence on potential investments to assess their financial viability, social impact, and environmental sustainability.
- Fund management: Managing the investment portfolio, monitoring fund performance, and ensuring alignment with investor expectations.
- Investor relations: Building relationships with investors, communicating investment performance, and providing ongoing support.
- Impact measurement and reporting: Tracking and reporting on the social and environmental impact of Arcano's investments.
Business Model Innovation:
Arcano can explore various business model innovations to enhance its value proposition and reach a wider audience:
- Developing a technology platform: A digital platform could streamline the investment process, improve investor engagement, and facilitate impact measurement and reporting.
- Offering customized investment solutions: Arcano could offer tailored investment portfolios to meet the specific needs and preferences of different investor segments.
- Expanding into new asset classes: Arcano could diversify its investment portfolio by expanding into new asset classes, such as real estate or infrastructure, while maintaining a focus on impact.
4. Recommendations
1. Geographic Diversification:
- Target emerging markets: Arcano should prioritize expanding into emerging markets beyond Latin America, particularly in Asia and Africa, where there is significant potential for impact investing.
- Develop local partnerships: Arcano should partner with local organizations and experts to gain access to market insights and build trust with potential investors.
- Tailor investment strategies: Arcano should adapt its investment strategies to the specific needs and opportunities of each target market.
2. Strategic Alliances and Mergers & Acquisitions:
- Form strategic alliances: Arcano should explore strategic alliances with other impact investment firms, technology companies, or non-profit organizations to expand its reach, access new markets, and leverage complementary expertise.
- Consider mergers and acquisitions: Arcano could consider acquiring smaller impact investment firms or technology companies to gain access to new capabilities and markets.
3. Leverage Technology and Analytics:
- Develop a digital platform: Arcano should invest in developing a user-friendly digital platform to streamline the investment process, improve investor engagement, and facilitate impact measurement and reporting.
- Utilize data analytics: Arcano should leverage data analytics to identify investment opportunities, track portfolio performance, and measure impact.
4. Enhance Corporate Social Responsibility:
- Promote transparency and accountability: Arcano should strive for transparency in its investment practices and reporting, ensuring that investors have access to comprehensive information about the social and environmental impact of their investments.
- Engage in stakeholder dialogue: Arcano should engage in regular dialogue with stakeholders, including investors, investees, and local communities, to ensure that its activities are aligned with their values and priorities.
5. Foster Innovation and Entrepreneurship:
- Support early-stage impact ventures: Arcano could establish a dedicated fund or program to support early-stage impact ventures, providing them with access to capital, mentorship, and networking opportunities.
- Encourage innovation within the firm: Arcano should foster a culture of innovation and experimentation, encouraging its team members to explore new ideas and approaches to impact investing.
5. Basis of Recommendations
These recommendations are based on a careful consideration of Arcano's core competencies, external customer needs, competitors, and quantitative measures of attractiveness.
- Core competencies and consistency with mission: The recommendations align with Arcano's core competencies in impact investing and fund management, while also expanding its geographic reach and strengthening its commitment to sustainability and social responsibility.
- External customers and internal clients: The recommendations address the needs of Arcano's investors, who are seeking both financial returns and positive social and environmental impact. They also aim to attract new investors by offering a wider range of investment opportunities and a more sophisticated digital experience.
- Competitors: The recommendations help Arcano to stay ahead of the competition by leveraging its strengths, addressing its weaknesses, and capitalizing on emerging opportunities in the impact investing space.
- Attractiveness ' quantitative measures: The recommendations are expected to drive significant growth in Arcano's assets under management, expand its market share, and increase its impact on the world.
6. Conclusion
Arcano Partners has a unique opportunity to scale its impact and reach a wider audience while maintaining its commitment to sustainability and social responsibility. By focusing on geographic diversification, strategic alliances, technology and analytics, enhanced corporate social responsibility, and innovation, Arcano can position itself as a leading player in the global impact investing space.
7. Discussion
Alternatives not selected:
- Focusing solely on Latin America: While Latin America remains a promising market for impact investing, focusing solely on this region would limit Arcano's growth potential.
- Ignoring technology and analytics: Failing to embrace technology and analytics would put Arcano at a disadvantage in a rapidly evolving industry.
- Maintaining a purely passive investment approach: Arcano could consider taking a more active role in supporting its investees, providing them with mentorship, networking opportunities, and access to resources.
Risks and key assumptions:
- Economic volatility: Economic downturns could negatively impact impact investing, potentially reducing investor appetite for Arcano's funds.
- Regulatory uncertainty: Changes in regulations could create uncertainty for impact investors and potentially hinder Arcano's growth.
- Competition: The impact investing space is becoming increasingly competitive, and Arcano will need to constantly innovate and differentiate itself to remain ahead of the curve.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Geographic Diversification | Access to new markets, increased growth potential, greater impact | Requires significant investment, potential cultural challenges, increased complexity | Economic volatility, regulatory uncertainty, competition |
| Strategic Alliances & M&A | Access to new capabilities, expanded reach, faster growth | Potential for conflicts of interest, integration challenges, dilution of control | Failure to integrate effectively, cultural clashes, loss of brand identity |
| Leverage Technology & Analytics | Improved efficiency, enhanced investor experience, better impact measurement | Significant investment required, potential for technical challenges, data security concerns | Technological obsolescence, cybersecurity threats, data privacy issues |
| Enhance CSR | Improved brand reputation, increased investor confidence, stronger stakeholder relationships | Requires significant effort and resources, potential for reputational damage if not implemented effectively | Stakeholder backlash, negative media attention, regulatory scrutiny |
| Foster Innovation & Entrepreneurship | Access to new investment opportunities, potential for disruptive innovation, enhanced brand image | Requires significant investment, potential for failure, risk of losing focus on core business | Lack of success in identifying and supporting promising ventures, distraction from core business, reputational damage if ventures fail |
8. Next Steps
Timeline with key milestones:
- Year 1: Develop a comprehensive strategic growth plan, identify target markets for geographic diversification, explore potential strategic alliances and M&A opportunities, and begin developing a digital platform.
- Year 2: Launch operations in new target markets, finalize strategic alliances, complete any M&A transactions, and launch the digital platform.
- Year 3: Continue expanding geographic reach, build strong local partnerships, refine investment strategies for each target market, and leverage data analytics to optimize portfolio performance and impact measurement.
By implementing these recommendations and taking a proactive approach to growth and innovation, Arcano Partners can continue to make a significant impact on the world while achieving sustainable financial success.
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Case Description
The case describes the setting up of an impact fund of funds (FOF) in 2019 by Arcano Partners, a leading Spanish independent asset management firm. Since its inception, Arcano Partners pioneered the FOF model in Private Equity and had recently launched two successful ESG-committed funds. Now, the firm is venturing into the impact investing space. The case centers around Jose Luis del Río, head of the PE division at Arcano, who is about to pitch to Caixabank - Spain's largest institutional investor - their first Impact fund, with the aim of closing them as the anchor investor. José Luis needs to decide whether to include thematic funds in the portfolio of Arcano's Impact FOF, but also whether it is worth deviating from their traditional buyout strategy and focus the FOF towards growth stage investments.
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