A private equity fund registered in the Cayman Islands will set up a fund targeting 15 to 20 unlisted Sri Lankan companies for foreign investments with special attention to the tourism, information technology, agriculture, financial services, logistics, power generation and retail sectors.

Leopard Capital Asia based in Hong Kong has entered into a joint venture with Orion Capital Partners of Sri Lanka to create Leopard Capital Sri Lanka which will raise private capital from foreign investors into two funds—1. Leopard Sri Lanka Fund for private equity, and 2. Leopard Sri Lanka Value Fund for listed equities on the Colombo Stock Exchange.

Chief Financial Officer and Managing Partner of Leopard Capital Asia, Thomas Hugger, told journalists in Colombo last morning that the Leopard Sri Lanka Fund (LF) would begin to mobilise long term foreign investments from February next year into selected private companies in Sri Lanka that would be identified during the next five years.

"We hope to raise US$ 100 million in to the LF for a 10 year period and the investment widow would be open to foreign investors for a one year period from February 01, 2010. For the first five years we would look for unlisted private companies in which to invest and during the remaining five years we would look at the exit strategies," Hugger said.

Chairman of Leopard Capital Sri Lanka, Ranjit Fernando, said the LF would look at a handful of private companies who have the potential to grow but are in need of capital.

"This is not a loan. The fund would be used to purchase equity stakes in selected private companies and investors would have to stay with the fund for ten years after which they could unload the shares.

"We cannot manage large amounts so we would be looking at 15 to 20 large mature companies who need capital to expand and grow," he said.

Fernando said the benefit of having such a fund for investments in private companies is that it would allow Sri Lankan companies to reap the benefits of Sri Lanka’s post-war economic growth prospects instead of being displaced by large foreign companies who have enough capital to set up operations and expand in Sri Lanka.

He said a private equity fund, such as LF, would help local companies and family owned businesses to grow and contribute to the country’s economy by obtaining capital offering private shares for investment, avoiding decline and demise.

Founder and CEO of Leopard Capital Asia, Douglas Clayton, outlined the broad criteria for eligible private companies.

"We would look at the scale of business. For example, we would not be interested in the biggest restaurant in Colombo, but one with the potential to grow a chain of restaurants. Businesses most also show potential in being market leaders in whatever they do.

"Gravity of good management is important and we would demand good governance and transparency. There also has to be ease of exiting the investments once the term ends," Clayton said.

Nirosh De Silva, Managing Partner, Leopard Capital Sri Lanka, said although the LF was focusing on unlisted private companies, financials and other documents would be filed regularly with the Securities and Exchange Commission, "for the sake of transparency".

The second fund, the Leopard Sri Lanka Value Fund, would tie foreign investors for two years in lesser known and less researched companies in the Colombo Stock Exchange.

"Of course it would be a mixed bag," De Silva told the Island Financial Review, " after two years investors have the option of exiting the fund so it is crucial that the stocks we select be not only high performers but also liquid."

Sri Lanka’s stock exchange is relatively illiquid, an issue its regulator the Securities and Exchange Commission is keen to rectify.

"We have just come out of a thirty year old war and it has been only six months since then. So I think with time the stock exchange would begin to adjust and we could see some liquidity returning. What we hope to do is attract some longer term investments," De Silva said.