We developed a set of case studies of impact investments in emerging and frontier markets made by institutional investors including pension funds, providing concrete examples of impact investments that meet the specific needs of UK institutional investors.

The case studies were developed in partnership with Dalberg Advisors and with support from the Foreign, Commonwealth and Development Office’s IMPACT Programme and cover multiple asset classes, themes and geographies, including emerging and frontier markets in Africa, Asia and other global regions. They are accompanied by asset class profiles, which summarise key asset class trends and opportunities in emerging and frontier markets from the perspective of institutional investors.

Our evidence shows, most importantly, that significant and measurable impact can be achieved while delivering a risk-adjusted financial return that is suitable for pension funds.

The case studies also show:

  • Contrary to a prevailing misconception, pension funds can and do make impact investments in emerging and frontier markets. More and more pension funds are integrating emerging markets impact investments into diversified global investment portfolios. This includes pension funds based in Europe and in countries such as the US, Canada and Japan.
  • There are diverse impact investment opportunities available to pension fund investors in emerging and frontier markets. Pension funds invest in both public and private markets, across different asset classes, thematic areas, geographies and expectations in terms of financial returns and environmental and social impact.
  • Impact investing opportunities in emerging and frontier markets are becoming more innovative and sophisticated with the increasing need and opportunity to attract more institutional capital. Asset managers and intermediaries are developing innovative solutions to address the most common concerns of institutional investors, for example around currency, liquidity or ticket sizes, that may prevent them from investing in emerging and frontier markets. Partnerships between private and public investors in the market are important and include the key role that can be played by development finance institutions and multi-lateral development banks in providing investment opportunities with conditions suitable for pension fund investors.

In the coming months, we will engage with UK pension funds around the case studies and broader opportunities for impact investing in emerging and frontier markets and support them in embracing those opportunities. If you are a pension fund trustee, consultant, member of an in-house investment team, or an investment manager interested in finding out more, please contact us at [email protected].

Public Bonds

There has been an increased issuance of green bonds and social bonds globally and across emerging markets. Green and social bonds operate like traditional bond issuances and are income generating assets for investors.

The African Development Bank Group Social Bonds programme finances projects with a measurable, positive social impact. The EUR 7-year Social Bond is part of the programme, which includes five social bonds totalling around USD 5.3 billion and was launched in 2017.

The Masala Green Bond is a public Indian rupee offering listed on the London Stock Exchange offered by the World Bank Group’s International Finance Corporation.

Private Equity Funds

Private equity funds represent a large opportunity set for investors in emerging markets who are willing to make longer-term investments. Over the last decade, private equity penetration in emerging markets has expanded, raising over USD 100 billion annually since 2014.

East Africa Fund I & Africa Fund II are venture capital funds managed by Novastar Ventures that support early- and growth-stage companies serving the low-income mass market segment in East Africa, Nigeria and Ghana.

ADP III is Development Partners International’s third generation private equity fund, investing in consumer goods, financial services, education, healthcare and agri-business for the emerging African middle class.

agRIF is a hybrid private equity and debt fund seeking to improve financial inclusion in the agricultural sector in low and middle-income countries.

The Danish Climate Investment Fund extends funds through equity and mezzanine financing to low-carbon and climate-resilient projects in low- and middle-income countries.

Energy 4 is Actis’ fourth-generation energy-focused private equity fund. The fund seeks to increase access to renewable energy in low- and middle-income countries through investments in electricity generation and distribution businesses.

Financial Inclusion II is the second generation private equity fund launched by the Australian firm LeapFrog in 2014. It was significantly oversubscribed, raising USD 400 million to be invested in financial inclusion across Africa and South Asia.

The IHS Fund II are two private equity funds launched by International Housing Solutions. IHS invests in affordable housing and green housing development projects in South Africa, Botswana, Namibia and other countries in Sub-Saharan Africa.

India Fund II extends early-stage venture capital to Indian start-ups developing technologies for food, agriculture and the rural economy. The fund seeks to support firms disrupting Indian food systems, making agriculture more profitable and sustainable.

Private Debt Funds

Private debt is a large asset class in emerging markets, raising a record USD 9.4 billion in 2018. Private debt is also the largest asset class in impact investing, accounting for 37% of all investments, including both market and below market rate.

The Emerging Markets Loans Fund extends socially and environmentally responsible senior loans with fixed maturity dates to financial institutions, renewable energy firms and agribusinesses.

The Financial Inclusion Fund (formerly Institutional Microfinance Fund III) is the third-generation financial inclusion fund offered by ACTIAM and Developing World Markets (DWM), raising debt capital from institutional investors to provide financing to financial inclusion institutions (FIIs) across emerging markets, with expected market-rate returns. Investments are de-risked through ACTIAM’s FII selection approach and active support to FIIs.

The Global Sustainable Income Fund II is the second closed-end private debt fund managed by TriLinc Global Advisors. It provides private term loans and trade finance loans to small and medium-sized enterprises across emerging markets to create trade and economic growth through access to finance.

Public Equity Funds

Public equity funds dedicated to impact in emerging markets provide an accessible entry point for investors seeking liquid options. Since the introduction of the Sustainable Development Goals, there has been growth in public equity funds focused on emerging markets and impact investing.

The Emerging Markets Sustainable Impact Fund is a public equity accumulating sub-fund under Nomura Ireland plc. The fund is an actively managed portfolio of emerging market equities launched in March 2020, investing in companies contributing to the 17 Sustainable Development Goals.

Social Impact Bonds

Social impact bonds, which are often referred to as development impact bonds in the context of emerging markets, are a promising instrument to mobilise private capital for impactful social initiatives.

The Humanitarian Impact Bond, issued by the International Committee of the Red Cross with the support of the impact investing firm Kois, is a social impact bond raising private capital to finance physical rehabilitation centres and patient care for populations living in conflict zones.

Infrastructure and Real Assets Funds

The Emerging Africa Infrastructure Fund (EAIF) is a multi-donor fund mobilising capital to provide long-term debt to businesses creating, expanding or improving…

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