LeapFrog Investments goes into this recession with capital on hand, the fortuitous result of having raised more than $700 million for its third fund last year.
That’s a stark contrast to the last recession, when LeapFrog launched its first fund a week after the collapse of Lehman Brothers in 2008. The emerging market impact investor went on to raise $135 million and prove out its thesis that rising middle classes in Asia and Africa would increasingly demand “wealth and health.”
CEO Andy Kuper said the COVID pandemic has strengthened LeapFrog’s investment thesis of “profits with purpose,” at least on a relative basis. The shrinkage in emerging markets, though hit hard by pandemic-related shutdowns, is forecast to be less severe than the downturn in more developed economies, according to the World Bank’s recent Global Economic Outlook.
“There’s no reason why those billions of consumers rising and emerging Asia and Africa are not going to continue to demand” insurance, health care and financial services, Kuper said in an interview on ImpactAlpha’s latest Returns on Investment podcast. “We have every reason to believe that the thesis of investing in companies serving emerging consumers is only going to amplify in the coming years, especially if you take the digital dimensions into account.”
LeapFrog now manages a total of $1.6 billion. Some among the firm’s two dozen portfolio companies already are demonstrating that growth. Goodlife Pharmacy, in East Africa, for example, has become one of the region’s largest healthcare providers. WorldRemit, which specialized in international transfers to mobile money accounts, has quintupled its customer base since LeapFrog invested two years ago.
Kuper says in addition to upside growth potential, positive impact also provides a cushion against downside risk. “If you’re highly customer centric, and you’re working in a market of billions of customers rising, you’re going to be stickier with those customers. You’re going to have the support of regulators.” he said.
The thesis has been effectively validated by large insurers and financial services companies like Prudential Financial and Axa, which are LeapFrog investors, and Standard Chartered and Fidelity, which have bought out LeapFrog’s shares in portfolio companies as part of their own emerging market growth plans.
When he launched LeapFrog, Kuper committed to reaching 25 million low-income customers by the end of 2019. The company’s recent impact report, the company says its portfolio companies reach 205 million people, 164 million of them low-income. For the next decade, Kuper has raised the firm’s ambition: to reach one billion people by 2030
“If you look at how that is done, it is fundamentally by growing successful scaled companies,” Kuper said. Small may be beautiful but, increasingly, digital technology means many great ideas can be “super-scaled,” he says.
“That’s the ambition that I sometimes think is lacking in parts of the impact investing ecosystem,” Kuper said. “Impact investing has to be the lever that’s long enough to move to this world. And this world has 4 billion low-income people in it. So we really need to focus on what are those companies that are going to serve 10s of millions of people with quality, affordable products and make sure they get the support they need.”