ImpactA Global intends to use private debt solutions to tackle problems in emerging markets following an injection from Legal & General Capital. Piyasi Mitra reports.
Last year, Legal & General Capital took a US$100 million stake in ImpactA Global, a women-led firm in London that specialises in emerging markets private debt solutions. The firm’s mission, say the founders, is to propel climate transition and resilient infrastructure in emerging markets while also gaining investment returns. The firm aims to tackle inequality and climate change simultaneously, they say.
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Victoria Miles, a founding partner who is also co-CEO and co-CIO, was previously a managing director in JP Morgan’s London emerging markets trading and syndication team. Funds Europe speaks with her about ImpactA, and to partner and head of impact, Audrey Cauillez-Louis, along with Susan Ward, chief risk officer and chief operating officer, and co-CEO and co-founder, Isabella da Costa Mendes.
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How does ImpactA Global’s “catalytic” approach mobilise funding from development finance institutions, export credit agencies and traditional lenders?
Victoria Miles – There is an annual US$1 trillion funding gap for infrastructure in emerging markets alone. Development finance institutions, export credit agencies and traditional lenders cannot bridge this gap alone. Private institutional capital must be mobilised at scale to deliver these goals. Our strategy is to bring institutional capital to complement official sector resources in those segments or geographies where capital is most needed but where historically institutional capital hasn’t had the ability or appetite to participate.
Can you elaborate on the risk mitigation strategies implemented through your proposed partnerships across the capital structure?
Susan Ward – Project finance infrastructure default rates – globally and in emerging markets – are historically lower than in corporate markets, and recovery rates are meaningfully higher. Furthermore, we look at transaction structure and use our extensive experience to mitigate risk across the capital structure. Partnering strategically in challenging jurisdictions and utilising market tools for risk reduction is key.
Closing the infrastructure gap is crucial for economic growth and reducing income inequality. How do you ensure that its investments have a multiplier effect for a positive impact in these areas?
Audrey Cauillez-Louis – The potential multiplier effect is significant and at least three-fold. By targeting emerging markets, we know that the ultimate impact on populations is greater than developed markets, as we will be targeting infrastructure sectors addressing basic needs such as access to water, renewable power, sustainable mobility and healthcare. According to a World Bank survey, every $1 spent on resilient infrastructure in emerging markets unlocks $4 of benefits.
We will target those missing parts of the capital structure that, albeit sometimes small in amounts, unlock 5 to 8 times the amount of funds coming from ECAs and/or DFIs.
With our specific positioning in the capital mix alongside the official sector public players, we look to mobilise private institutional capital at scale to address the critical infrastructure needs in EM.
Our impact will be measured in capital unlocked per transaction across these sectors, together with some relevant sectorial KPIs. Our approach will consider the depth of the reach to the communities, the level of inclusion and the sustainability aspects of the transaction, adding a gender lens when practicable.
Could you highlight with examples some of the challenges encountered in the implementation of ImpactA Global’s strategy to bring in private institutional capital for sustainable infrastructure projects in emerging markets?
Team: ImpactA is operating in emerging markets, which can sometimes be perceived as risky. However, project finance of key infrastructure assets is a very structured and resilient financial asset class, demonstrating low default rates and significant recovery rates over the past 20 years (according to GI Hub). The participation of export finance and development finance institutions in transactions is a risk mitigation tool, even though it can generate some structural complexity.
Infrastructure debt remains a relatively new asset class, and emerging markets infra debt can feel even less familiar to institutional investors, especially those more used to focusing on liquid or publicly rated debt. Many institutional investors are exploring this asset class offering attractive risk rewards and compelling impact. Once they dedicate time to understanding the robust performance of infrastructure debt and the additional credit enhancement official sector entities offer, we begin to see more engagement.
ImpactA focuses on regions such as Latin America, the Caribbean, Africa and South Asia. How does the company identify projects within these regions?
Isabella da Costa Mendes – We each individually have over 25-30 years of experience delivering financing in global emerging markets, so we have a unique capability to source transactions from sponsors, contractors, governments and other financial institutions. Creating a robust pipeline is pivotal to selecting transactions; investors look to us to actively source the right mix of opportunities.
In driving climate transition and resilient infrastructure in emerging markets, how does ImpactA balance the dual objectives of delivering market returns and achieving measurable impact in climate transition and addressing inequality?
Victoria Miles- We do not see that achieving impact requires compromising returns. The impact is at the core of what we do, but the projects we develop in the geographies where we operate are so critical that they deliver impact while still offering market returns. We believe that the risk/reward proposition of financing sustainable infrastructure in emerging markets is quite attractive relative to other private debt and infrastructure asset classes.
Finally, a distinctive feature of your leadership team is its composition of an all-women team. Do you believe this provides a distinctly different approach, potentially giving you a competitive edge?
Isabella da Costa Mendes- Although we are a women-led team, we are not women-only. The team has a very balanced mix of professionals in terms of gender and background. Diversity contributes to better outcomes and representation is much needed. Climate finance is an urgent issue that established players have not fully addressed. Tackling the challenges ahead requires a diverse approach from various perspectives.
Because women are so much more vulnerable to the effects of climate change, we bring a perspective that will focus on mitigation and adaptation to reduce these inequalities and contribute to a just transition.
