The UK-based financial services firm has a $1 billion portfolio of impact products geared towards emerging markets. A new debt strategy focused on nature conservation and social infrastructure will make it possible for defined-contribution retirement account holders in the UK to make impact investments in emerging markets.
The Nature and Social Outcomes fund invests in marine, forestry and habitat conservation, as well as health, education and water projects. L&G seeded the initiative with $235 million from two of its multi-asset retirement funds.
The strategy offers its clients “exposure to a fast-growing and impactful part of the global debt market,” said L&G’s Jesal Mistry. He added that it addresses a “need to unlock financing where it is often most needed with the aim of delivering positive returns for members in retirement.”
Private credit
L&G’s launch combined two trends: investor interest in impact credit opportunities and private fund managers eagerness to tap the massive retail investor market (for background, see “Make Asset Management Great Again: Larry Fink’s private path to economic populism”).
Research and data is debunking long-held misperceptions of emerging markets investment risk, particularly for debt. The fund’s first deal was an investment in Ecuador’s second debt-for-nature swap, which will refinance $1.5 billion of the country’s sovereign debt and free up $460 million for nature preservation (see, “Ecuador makes $1.5 billion debt swap to free up capital for nature preservation”).
“Institutional investors are increasingly able to incorporate debt conversion bonds into their debt allocation, and the product is headed in the right direction, attracting a greater number and diversity of participants,” L&G’s Jake Harper told ImpactAlpha. “We foresee a healthy pipeline of debt conversion transactions this year.”
L&G’s investment – and its client’s retirement savings – benefit from guarantees and credit insurance to minimize risk.
Conservation finance
L&G was an early backer of debt-for-nature swaps, investing in Ecuador’s first swap, and similar deals in Gabon and Belize. Its emerging markets impact portfolio also includes $350 million for use-of-proceeds bonds for water, renewable energy, housing, education and other social infrastructure in Africa and Eastern Europe.
It committed $100 million to ImpactA Global, a women-led debt provider for emerging markets infrastructure projects.
