Emerging markets strategies are gaining a new source of capital

The pressing need for more climate solutions-focused capital will be helped by an emerging cohort of local LPs.

Africa50’s Infrastructure Acceleration Fund, which reached a first close on $222.5 million earlier this week, has an LP base comprised almost entirely of African institutional investors.

This is somewhat out of the ordinary. Private fund managers tend not to look to the continent when raising capital, even when that capital is set to be deployed in the region.

As many countries in Africa and Asia enter a phase of intense economic growth, there is a pressing need for energy transition-focused capital to flow to emerging markets, as outlined so thoroughly last year by this report from LeapFrog Investments, Temasek and CGAP, a unit of the World Bank. The investment world has finally started to respond to this need in earnest; at COP28 last year, impact fund managers such as Brookfield, TPG and BlackRock launched dedicated EM climate funds, turbo-charged by catalytic anchor commitments from the UAE’s $30 billion climate fund, Altérra.

EM private markets strategies have long been funded by strategic or mission-oriented investors, such as development finance and government-funded organisations. The new wave of climate funds are designed to attract more capital from institutions seeking market-rate returns.

Though not explicitly an impact manager, there is clearly a sustainability angle to Africa50’s investment strategy. The firm plans to invest across energy, transport, sanitation and social infrastructure with a view to “fostering sustainable development”.

Its investor base includes sovereign wealth funds, pension funds, social security funds, insurance companies, as well as DFIs the African Development Bank and the International Finance Corporation.

When speaking to potential LPs, Africa50 found that many “didn’t have any experience investing in alternative investments”, fund head Vincent Le Guennou told New Private Markets. As a result, the firm undertook an “education process” with a number of investors, which involved laying out “what investing in a fund would mean”. It is not a huge leap to imagine that some of these investors will use their newly acquired private markets knowhow to invest in other sustainability or energy transition-flavoured funds operating in the region.

More participation by local investors should be viewed as an entirely positive development, as it creates a more direct link between beneficiaries and the investment activity. While capital from developed markets will still be needed if emerging economies are to meet their climate goals, a new generation of local investors with a vested interest will certainly help.