ImpactAlpha, June 9 – Impact investing strategies in emerging markets are seeing increased interest from global investors on the hunt for yield, impact or both. In particular, Asia’s growing wealth, and with it, private and institutional investors’ capital, is driving more Asian asset owners into impact investing.
This week, Hong Kong-based insurance firm AIA made a $200 million investment in impact fund manager LeapFrog Investments, which has a 14-year track record investing in basic products and services for billions of people in the emerging consumer class worldwide. The firm is also backed by $500 million from Singapore’s Temasek.
Investors from Asia once made up only 5% of LeapFrog’s limited partner base. Now they’re close to 30%. The opportunity for impact in home and regional markets is one draw. But they’re also attracted to the commercial opportunity in a region that houses more than 4.5 billion people and is slated for 4% to 5% GDP growth this year.
“These are not your 100% impact investors. They’re very experienced commercial investors, and they’re very much focused on returns,” LeapFrog’s Yalin Karadogan told ImpactAlpha.
Counter-cyclical
Rising interest rates, currency volatility and sovereign debt crises are rocking many low and middle-income countries. But private equity impact players like LeapFrog and Elevar Equity have long argued that there’s always demand and growth opportunity for products and services that meet people’s basic everyday needs.
Case in point: LeapFrog this week reupped its investment in HealthifyMe, a nutrition and fitness app serving 25 million mostly low-income people in India, South and Southeast Asia and North America, where chronic disease is on the rise. The impact investor predicts HealthifyMe will become a billion-dollar company by 2026, largely by expanding its base of low-income users.
Karadogan says the firm’s whole portfolio is “in pretty good shape”; LeapFrog reports 24% revenue growth on average across its portfolio.
Tide change
Investors committed $1.2 trillion to private equity strategies last year (down from $1.4 trillion in 2021). Despite a challenging fundraising environment, Karagodan says the tide has shifted globally in terms of investors’ interest in impact.
“There are investors who aren’t doing anything with impact investing, but that bucket is getting smaller and smaller,” said Karadogan, who spoke to ImpactAlpha from SuperReturn, an annual gathering of thousands of private equity and venture capital firms and investors, in Berlin.
“It’s no longer a startup-like industry. There’s more evidence now that this actually works,” he added.
There’s also more urgency, in light of climate threats and pandemic-caused setback on the sustainable development goals.
“One thing I tell people is that some of the problems on the planet are getting worse,” said Karadogan, “and if investors don’t invest for social or climate impact, everything now will be worth less in the future.”
