As far as impact fundraising goes, Allianz Global Investors is ticking all the right boxes with its Allianz Credit Emerging Markets, or ACE, fund. Big name fund manager, large fund, private credit – all are features of impact funds that have done relatively well fundraising in a challenging market.
ACE Fund is targeting $1 billion to unlock debt financing for climate-related services and infrastructure, including renewable power, clean transportation and agriculture, in emerging markets. The fund will invest in deals diligenced and backed by development finance institutions to bring commercial capital to those deals. Allianz has raised a total of $690 million for its first close.
With $690 million raised, Allianz SE and Swiss pension fund GastroSocial Pensionskasse are anchoring the fund’s senior tranche. Development financiers British International Investment, Global Affairs Canada, IDB Invest, the Swedish International Development Cooperation Agency and Impact Fund Denmark provided $150 million in concessionary capital. The Swedish and Danish institutions provided first-loss guarantees.
Blending billions
Allianz Global Investors has built a name for itself as an experienced big-ticket blended finance fund manager. ACE Fund is the firm’s fifth large-scale blended finance fund. A prior fund, the SDG Loan Fund, took three years to put together; it layered multiple tranches of concessionary capital and guarantees to raise $1.1 billion to lend to emerging market projects advancing the Sustainable Development Goals (go deeper). “
ACE is an evolution of the previous four blended funds that we have launched over the past decade,” said Allianz’s Leticia Ferreras Astorqui at a launch event for the fund in London. “We are building on all the lessons learned.”
Fund managers trying to blend capital in funds for emerging markets often have to teach investors simultaneously about blended finance structures and about the real versus perceived risks of investing in emerging markets. An institutional investor based in New York with little knowledge of emerging markets may prefer a high-yield investment in the US, “not knowing that high-yield in the US has much higher risk than high-yield in Guatemala,” observed Jozef Henriquez of IDB Invest. “There’s a mispricing of risk and a lack of understanding of the risk.”
Allianz has focused on portfolio diversification as a key message, particularly for investors with little or no exposure to emerging markets, added Allianz’s Edouard Jozan.
“It’s about the balance between financial and non-financial returns at the right risk and in the right region,” he said.
Under pressure
“There’s a maturation in blended finance,” noted Leslie Maasdorp of BII, which anchored ACE Fund’s junior tranche through its MOBILIST initiative.
To be sure, there are few 10-figure blended finance funds like ACE, and smaller funds have a much harder time fundraising, especially from institutional investors and development finance institutions looking to write larger checks. But DFIs especially are under pressure to mobilize capital for climate and sustainable development.
“The entire business model is changing,” said Maasdorp. “It is about taking into account the much more constraining environment that developing finance institutions find themselves in.”
Added Allianz’s Florian Kramer: “A lot of the work has been done so you can now just join the club without going through the four year process.”
